REPORT 

OF 

SPECIAL  PANAMA  CANAL 
COMMISSION 


WITH 


LETTER  FROM  THE  GOVERNOR,  OF  THE  PANAMA  CANAL 

TO  THE  SECRETARY  OF  WAR,  DATED  SEPTEMBER  17, 1921 

AND  LETTER  FROM  THE  SECRETARY  OF  WAR 

TO  THE  GOVERNOR  OF  THE  PANAMA  CANAL 

DATED  OCTOBER  18,  1921 


IjmI 


Gift  of  the  Panama  Canal  Must  m 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

»22 


.-    .        ,  '.'.••;•■  -''r  ■/.;'■  :0-%i4 


: 


REPORT 

OF 

SPECIAL  PANAMA  CANAL 
COMMISSION 


WITH 


LETTER  FROM  THE  GOVERNOR  OF  THE  PANAMA  CANAL 

TO  THE  SECRETARY  OF  WAR,  DATED  SEPTEMBER  17, 1921 

AND  LETTER  FROM  THE  SECRETARY  OF  WAR 

TO  THE  GOVERNOR  OF  THE  PANAMA  CANAL 

DATED  OCTOBER  18,  1921 


1921 


■J* 


WASHINGTON 

GOVERNMENT  PRINTING   OFFICE 

1922 


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in  2011  with  funding  from 

University  of  Florida,  George  A.  Smathers  Libraries  with  support  from  LYRASIS  and  the  Sloan  "Foundation 


http://www.archive.org/details/reportofspecialpOOunit 


INDEX. 

[APPENDICES   ACCOMPANYING   REPORT   HAVE  NOT  BEEN   PRINTED.] 


Page. 

Plan  of  the  report 5 

Objects  of  the  canal 6 

Future  policy,  reference  shops  and  dry  docks 7 

Basis  of  operation  of  canal 7 

Capital'account  to  be  stated 8 

Tropical   labor 9 

Rents  and  other  perquisites 10 

Bases  for  rates  of  pay 11 

Leave   privileges 11 

Open-shop  policy 

Separation  of  Panama  Railroad 13 

Encouragement  of  agriculture 13 

New  auditing  system 14 

Executive  versus  operative  pay 15 

Division  of  schools 15 

Police  and  tire  division 16 

Division  of  civil  affairs 17 

Courts 17 

Municipal  division 17 

Relations  with  Panama .    18 

Relations  with  the  military 20 

Health  department 21 

Hospital  division 22 

Sanitation    division 23 

Quarantine  division 24 

Accounting  department 24  . 

Supply  department : 25 

Commissary   division 25 

Miscellaneous  activities  of  supply  department 26 

Restaurants   and   hotels 26 

Electrical  division 27 

Bureau  of  clubs  and  playgrounds 28 

Record  bureau : 28 

Personnel  bureau 29 

Property  and  requisition  bureau 29 

Bureau  of  statistics 29 

Washington   office 29 

Division  of  lock  operation 30 

Dredging    division 30 

Marine  division 31 

Mechanical  division 31 

Steamboat-inspection  service i 32 

Meteorological  and  hydrographic  section 32 

Panama   Railroad 33 

Panama  Railroad  Steamship  Line 35 

Conclusion 37 

Letter  from  Governor  The  Panama  ('anal  to  Secretary  of  War.  September 

17,   1921 _, . 38 

Letter  from  Secretary  of  War  to  Governor  The  Panama  Canal.  October 

IS,   1921 53 

3 


REPORT  OF  SPECIAL  PANAMA  (ANAL  COMMISSION. 


Washington,  D.  C,  Septe??iber  15,  1921. 
The  Secretary  of  War,  Washington,  D.  C: 

Sir:  The  Special  Panama  Canal  Commission  appointed  by  your 
letter  of  June  6,  1921  (see  Appendix  No.  1),  to  "investigate  and 
report  upon  existing  conditions  relating  to  the  care,  maintenance, 
sanitation,  operation,  and  government  of  The  Panama  Canal  and 
Canal  Zone,  including  all  matters  affecting  the  Panama  Railroad  and 
the  Panama  Railroad  Steamship  Line,  and  to  make  recommendations 
relative  to  any  changes  in  such  conditions  affecting  the  organization, 
government,  and  operation  of  The  Panama  Canal  and  Canal  Zone, 
and  the  operations  of  the  Panama  Railroad  Company,"  has  the  honor 
to  submit  the  following  report : 

The  chairman  of  the  commission,  Commissioner  Pry,  Commissioner 
Molitor,  and  Secretary  L.  H.  Van  Fossan  sailed  from  New  York  on 
the  Army  transport  Uantigny  June  10,  1921,  arriving  at  Cristobal 
on  June  18,  1921.  Commissioner  Wilson  sailed  from  New  Orleans 
on  June  22,  1921.  arriving  at  Cristobal  June  27,  1921.  Commissioner 
Molitor  sailed  from  Cristobal  July  8,  1921,  arriving  at  New  York 
July  16,  1921,  where  he  continued  his  survey  of  the  Panama  Rail- 
road Steamship  Co.  The  remainder  of  the  commission,  with  other 
personnel,  reached  Xew  York  July  31,  1921. 

In  accordance  with  your  instructions,  the  commission  made  a 
thorough  investigation  into  all  phases  of  the  activities  of  The  Pan- 
ama Canal  and  the  Panama  Railroad,  including  the  steamship  line. 
Immediately  upon  its  arrival  on  the  isthmus  the  entire  commission 
made  a  general  inspection  of  the  Canal  Zone  to  give  the  members 
a  proper  perspective  of  the  major  activities  and  the  general  problems 
involved.  Thereafter,  the  individual  commissioners  made  detailed 
investigations  of  the  divisions  falling  within  the  allocations  made 
to  each  based  upon  his  technical  qualifications. 

Numerous  conferences  were  held  with  the  governor  and  other  prin- 
cipal officials  of  the  Canal  Zone,  Panama  Railroad,  and  Panama  Rail- 
road Steamship  Line.  These  officials  met  the  commission  in  a  spirit 
of  cooperation  and  at  all  times  accorded  ever}7  assistance  to  the  com- 
mission in  its  endeavor  to  arrive  at  correct  conclusions  as  to  present 
conditions.  In  the  majorit}r  of  cases  the  Government  representatives 
in  the  Canal  Zone  are  men  of  ability  and  of  undoubted  loyalty  to  its 
best  interests,  and  we  feel  that  in  whatever  policy  may  be  decided 
upon,  you  will  have  the  support  of  the  canal  executives.  Most  of 
the  recommendations  contained  in  this  report  were  fully  discussed 
with  the  governor  and  his  principal  assistants  and  have  received 
their  concurrence. 

Immediately  upon  the  arrival  of  the  commission  on  the  Isthmus 
public  notice  was  given  through  the  newspapers,  setting  forth  the 
reasons  for  the  commission's  visit  and  stating  that  full  information 


6  REPORT    OF    SPECIAL   PAX  AM  A    C'AXAL    COMMISSION. 

was  desired,  and  that  public  hearings  would  be  given  to  any  and  all 
who  desired  to  be  heard  on  subjects  within  the  jurisdiction  of  the 
commission.  Hearings  were  granted  to  all  groups  of  employees  and 
other  persons  requesting  same. 

The  commission  desires  to  add  its  testimony  to  that  of  all  others 
who  have  viewed  this  work  of  American  genius  and  energy  and  to 
record  its  unfeigned  admiration  for  the  foresight,  courage,  and  abil- 
ity of  those  who  conceived  and  successfully  accomplished  this  gigantic 
task.  It  is  an  enduring  monument  to  the  ability  of  the  American 
nation  to  achieve  that  which  it  purposes,  and  as  such  all  Americans 
may  justly  take  pride  in  the  accomplishment. 

The  idea  is  prevalent  in  the  Canal  Zone  that  our  Government  is 
on  trial  in  the  eyes  of  the  traveling  public  by  the  way  that  it  admin- 
isters the  canal,  and  this  idea  permeates  through  all  decisions  affect- 
ing the  upkeep  and  operation  of  the  canal.  To  a  certain  extent  the 
commission  agrees  with  this,  and  it  is  not  believed  that  any  recom- 
mendations contained  in  this  report  will  lower  the  United  States  in 
the  opinion  of  the  traveling"  public.  On  the  other  hand,  the  com- 
mission does  not  feel  that  gratuitous  services  should  be  performed 
at  the  expense  of  the  United  States,  or  that  too  much  money  should 
be  expended  merely  for  show  purposes. 

It  has  been  thought  desirable  that  this  report  should  be  made  as 
brief  as  is  consistent  with  clearness  and  thoroughness,  and  to  that 
end  it  was  decided  to  confine  the  main  body  of  the  report  to : 

(a)  Full  recommendations  on  certain  questions  of  policy  which  the 
commission  regard  as  of  fundamental  importance. 

(7j)  A  brief  statement  regarding  each  activity  that  summarizes  the 
commission's  views  thereon  and  contains  only  general  recommenda- 
tions. 

The  reports  of  the  individual  commissioners  which  are  attached  as 
appendices,  give  the  personal  views  of  the  commissioner  writing  the 
report,  but  at  the  end  of  each  appendix  is  a  concise  summary  of  the 
recommendations  contained  therein  which  express  the  views  of  the 
commission  as  a  whole.  Wherever  a  difference  in  wording  exists 
between  the  recommendations  in  the  individual  reports  and  those  in 
the  summary  attached  thereto,  the  wording  of  the  latter  should  be 
taken  as  the  official  recommendation  of  the  commission,  although 
owing  to  the  brevity  of  some  of  the  recommendations,  reference  to  the 
individual  reports  should  be  made  to  obtain  the  full  spirit. 

The  decisions  of  the  administration  on  the  fundamental  questions 
of  policy  are  conditions  precedent  to  the  approval  of  the  more  de- 
tailed recommendations  of  the  commission.  Broadly  speaking,  most 
of  the  recommendations  stand  or  fall  with  the  Government's  decision 
as  to  the  future  policy  a^  to  how  The  Panama  Canal  shall  be  re- 
garded and  operated. 

OBJECTS  OF  THE  CANAL. 

The  Panama  Canal  was  constructed  for  two  purposes  (a)  as  a  com- 
mercial enterprise  and  (J>)  as  a  measure  of  national  defense.  The 
first  of  these  purposes  can  be  measured  in  dollars  and  cents  and 
should  form  the  measure  upon  which  the  commercial  operating  cost 
is  justified  and  upon  which  amount  the  Government  can  justly  look 
for  an  adequate  return.    The  second  purpose  can  not  be  measured  in 


REPORT    OF   SPECIAL   PANAMA   CANAL   COMMISSION.  7 

money  and  hence  should  constitute  a  sum  from  which  the  Government 
can  not  look  for  any  financial  return^  and  which  will  be  a  continuing 
source  of  expense. 

In  entering  upon  its  duties  the  commission  early  considered  the 
object  for  which  the  canal  was  built,  and  came  to  the  conclusion  that 
there  was  probably  no  single  primary  object.  In  the  minds  of  some 
legislators  this  primary  object  was  undoubtedly  that  of  national 
defense:  whereas  in  the  minds  of  others  it  was  probably  justified  as 
a  commercial  enterprise.  There  is  no  doubt,  however,  but  that  the 
military  needs  were  fully  considered  in  the  design  and  equipment  of 
the  canal,  and  that  the  canal  to-day  is,  amongst  other  things,  a  splen- 
didly equipped  naval  repair  and  coaling  base.  Assuming  that  this 
was  the  intention  in  the  design  and  equipment  of  the  canal,  the  com- 
mission has  been  unable  to  find  anything  that  justifies  the  continued 
expenditure  of  canal  funds  to  maintain  a  naval  base  at  this  place. 
Congress  has  not  appropriated  money  therefor,  the  Navy  Department 
has  made  no  allotment  to  it  for  that  purpose,  and  has  not  used  it  as 
such  except  for  the  occasional  naval  vessels  that  pass  through  thp 
canal.  Notwithstanding  these  facts,  the  maintenance  of  the  facilities 
and  of  the  force  of  operatives  has  in  the  past  to  a  very  great  degree 
been  influenced  by  the  belief  that  the  canal  must  be  maintained  as  a 
naval  base,  ready  to  do  any  class  of  work  for  which  it  is  equipped. 

This  opinion  is  believed  by  the  commission  to  be  one  of  the  funda- 
mental causes  of  unwarranted  expense,  and  one  of  the  stumbling 
blocks  to  an  adequate  reduction  in  working  force  and  in  overhead. 

Recommendations. — The  commission  regards  the  continued  opera- 
tion of  the  shops,  dry  docks,  or  any  other  part  of  the  Panama  Canal 
plant  as  potential  naval  activities  to  be  unjustified  and  an  unneces- 
sary burden  on  the  canal  appropriations.  We  recommend  that  the 
maintenance  of  any  such  activities  as  naval  auxiliaries  cease  imme- 
diately, and  that  hereafter  the  canal  be  operated  entirely  as  a  com- 
mercial agency  until  Congress  shall  otherwise  indicate  and  appro- 
priate therefor  or  until  the  Xavy  Department  can  provide  the  funds 
necessary  for  the  proper  operation  and  maintenance. 

The  commission  further  recommends  that  any  part  or  parts  of 
the  canal  activities  not  necessary  for  the  ordinary  commercial  and 
canal  activities  be  closed  up,  the  employees  be  discharged,  and  the 
machinery  and  other  material  or  equipment  be  laid  up  and  prepared 
for  prolonged  idleness,  except  as  provided  for  in  the  preceding  para- 
graph. 

BASIS    OF    OPERATION. 

The  Panama  Canal,  the  Panama  Railroad,  and  steamship  line  are- 
now  all  on  an  operating  basis,  and  they  should  be  treated  as  great 
commercial  or  business  enterprises  in  which  operations  must  justify 
costs,  and  those  in  charge  should  be  held  to  strict  accountability  for 
successful,  efficient,  and  economical  management.  Further  recom- 
mendations are  based  on  this  assumption. 

The  most  obvious  criticism  of  the  administration  of  The  Panama 
Canal  and  its  allied  activities  during  the  past  few  years  is  that 
economy  of  operation  has  not  been  given  sufficient  consideration  and 
it  has  never  been  placed  on  a  sound  operating  basis.  It  has  been 
treated  apparently  as  a  public  improvement  in  the  United  States 
where  no  direct  return  is  expected  and  where  the  benefits  derived 


8  REPORT   OF    SPECIAL   PANAMA   CANAL   COMMISSION. 

are  in  the  form  of  an  indirect  return  only.  The  Panama  Canal  is 
not  such  a  public  work;  it  is  used  by  the  world  at  large  and  not 
solely  by  our  own  people.  It  was  constructed  by  one  nation  for 
the  use  of  all  nations  and  we  therefore  have  the  right  to  expect  the 
users  to  pay  for  its  maintenance  and  operation  plus  a  reasonable 
return  upon  the  investment  therein.  Our  people  are  actually  paying 
these  amounts  now  and  any  policy  that  does  not  work  toward  reim- 
bursing them  for  such  expenses  is  fundamentally  erroneous  and  un- 
sound. The  only  way  that  this  can  be  accomplished  is  to  establish  a 
capitalization  upon  which  the  Government  ultimately  expects  an 
adequate  return,  and  for  this  purpose,  what  may  be  called  the  "  com- 
mercial value  "  of  the  canal  ought  to  be  established.  In  consider- 
ing this  matter  it  immediately  became  manifest  that  the  value  of  the 
canal  as  a  military  asset  could  not  be  estimated  in  dollars  and  cents. 
A  great  part  of  the  cost  of  the  canal  is  for  things  that  are  admittedly 
military,  and  in  capitalizing  the  canal  for  commercial  purposes  these 
must,  of  course,  be  omitted.  But  in  addition  to  them  there  is  a  great 
part  of  the  cost  that  must  be  written  off.  for  the  canal  would  not  have 
been  constructed  as  it  is  purely  for  commercial  purposes,  and  the 
question  now  arises  as  to  how  much  of  the  cost  of  the  canal  proper 
ought  to  be  set  up  as  the  amount  upon  which  a  return  ought  to  be 
demanded. 

The  Panama  Canal  represents  an  expenditure  of  $485,000,000. 
The  figure  thus  arrived  at  includes  the  actual  cost  of  construction 
plus  a  carrying  charge,  or  interest  on  the  investment,  of  approxi- 
mately 3  per  cent  up  to  the  official  date  of  opening,  July  15,  1920. 
Add  to  that  the  deficit  of  last  year  of  approximately  $12,000,000  (if 
interest  had  been  computed),  and  the  canal  to-day  represents  an  in- 
vestment of  approximately  $500,000,000.  This  sum,  however,  does 
not  represent  the  amount  that  would  have  been  necessary  to  build  a 
commercial  canal,  and  it  is  not  the  sum  upon  which  the  Government 
should  expect  a  return. 

Recommendations. — The  commission  doubts  very  much  whether  any 
fraction  of  the  above  sum  could  be  arrived  at  which  would  represent 
the  correct  commercial  value,  but  it  recommends  that  a  careful  study 
be  made  of  this  matter  and  that  a  definite  sum  be  determined  upon 
as  the  cost  of  the  canal  as  a  commercial  enterprise.  The  actual  cost 
of  the  canal  may  have  to  be  written  down  to  obtain  this  figure,  and 
if  so,  it  should  be  so  written  down  and  an  arbitrary  figure  should 
be  established  as  the  commercial  value  of  the  canal,  and  thereafter 
that  figure  should  be  used  in  the  operation  and  official  reports  as  the 
capital  account  upon  which  returns  and  expenditures  should  be 
justified. 

Having  arrived  at  this  figure,  the  commission  further  recommends 
that  the  same  be  subdivided  and  that  an  allocation  be  made  to  each 
activity  under  the  canal  administration,  and  that  thereafter  the  sum 
allotted  to  each  of  these  activities  shall  be  the  one  that  must  be  used 
in  justifying  the  continued  existence  of  the  activity  concerned. 

There  are  certain  activities,  such  as  sanitation,  hospitalization,  fire 
and  police  protection,  which  obviously  are  not  activities  from  which 
commercial  returns  can  be  expected.  These  and  other  similar  ones 
should  be  attached  to  the  canal  operation  proper  and  the  cost  thereof 
borne  by  the  canal  operations.     By  capitalizing  the  canal  and  its  vari- 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  9 

ous  subdivisions,  as  herein  suggested,  it  is  believed  that  many  desir- 
able results  will  obtain,  for  thereafter  not  only  the  canal  as  a  whole 
but  each  of  its  allied  activities  will  be  given  a  measure  by  which  the 
efficiency  of  their  operation  may  be  determined. 

TROPICAL  LABOR. 

One  of  the  greatest  causes  of  expense  in  the  operation  of  the  canal 
is  the  continued  employment  of  United  States  white  citizens  instead 
of  the  use  of  natives  of  Panama  or  adjacent  islands. 

In  pursuing  this  policy  we  have  bodily  transplanted  an  American 
community  to  a  tropical  country  and  are  using  American  workmen  in 
all  except  the  very  lowest  grades  of  labor.  This  is  contrary  to  the 
policy  of  any  commercial  concern  operating  in  tropical  countries  and 
contrary  to  the  policy  pursued  by  any  other  Government  that  is 
known.  The  ordinary  policy  in  all  such  cases  is  to  utilize  the  native 
laborer  to  the  extent  of  his  ability  and  to  educate  him  to  take  over 
positions  of  greater  responsibility,  using  white  employees  from  the 
home  country  to  the  minimum  possible  percentage.  This  plan  not 
only  reduces  the  cost  of  the  operation  and  the  call  upon  the  man  power 
of  the  home  country,  but  it  is  also  a  benefit  and  a  blessing  to  the 
tropical  country  concerned  in  that  it  employs  its  nationals  and  edu- 
cates them  in  the  arts  and  trades.  Our  citizens  are  accustomed  to  a 
temperate  climate,  and  as  such  are  physically  unsuited  to  labor  under 
conditions  that  exist  in  Panama.  To  obtain  employees  who  are  will- 
ing to  go  to  the  Tropics  and  follow  their  trades  there  we  are  forced 
to  pay  exorbitant  wages  and  to  bear  many  additional  expenses  as 
bonuses  for  things  that  are  necessary  for  a  citizen  of  the  United 
States  in  the  Tropics  but  which  would  be  unnecessary  if  local  labor 
were  employed. 

There  are  many  positions  for  which  local  labor  is  manifestly  un- 
fitted, due  to  lack  of  skill,  and  others  on  which  it  ought  not  to  be 
employed  inasmuch  as  they  are  aliens.  But.  on  the  other  hand, 
there  are  a  great  number  of  positions  that  can  be  filled  by  native 
tropical  labor  without  any  sacrifice  of  efficiency  and  at  a  tremendous 
saving  to  the  Government. 

During  the  construction  days  the  policy  of  employing  our  citizens 
was  justified  in  a  far  larger  measure  than  it  is  under  the  period  of 
operation  because  time  was  very  essential  and  because  during  con- 
struction many  positions  were  far  more  important  when  the  time 
element  was  considered  than  a  similar  position  is  to-day  under  oper- 
ating conditions.  We  would  be  justified  to-day  in  training  tropical 
labor  to  fill  the  various  positions,  whereas  in  construction  days  the 
time  element  did  not  permit  the  administration  to  delay  the  work 
loner  enough  to  attempt  the  instruction  of  local  labor. 

Recommendations. — The  commission  therefore  recommends  that 
the  governor  be  informed  that  conditions  have  now  changed  to  such 
an  extent  that  it  is  desired  that  he  employ  tropical  labor  and  artisans 
to  the  maximum  extent  possible,  taking  into  consideration  the  fact 
that  the  canal  is.  to  a  certain  extent,  an  element  of  national  defense 
and  that  there  may  be  certain  positions  in  which  aliens  ought  not 
to  be  emploved.  but  that  in  all  other  positions  he  employ  local  labor 
to  the  maximum,  and  that  he  institute  a  system  of  apprenticeships 
76736—22 2 


10  REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

and  training  by  which  he  can  build  up  a  larger  force  of  skilled  tropi- 
cal labor. 

It  is  believed  that  this  alien  labor  can  be  employed  in  much  greater 
numbers  and  in  much  higher  positions  than  they  now  are,  and  it  is 
further  believed  that  after  the  policy  above  enunciated  is  carried  out 
that  within  a  few  years  most  of  the  positions,  including  those  of  oper- 
ators of  mechanical  contrivances,  can  be  filled  almost  wholly  with 
tropical  labor. 

It  is  further  recommended  that  the  pay  authorized  to  this  class  of 
labor  be  increased  in  due  course  to  meet  their  increasing  capacity. 

RENTS  AND  OTHER  PERQUISITES. 

The  white  employees  of  The  Panama  Canal  enjoy  many  perquisites 
which  materially  reduce  expenditures  from  their  salaries  and  in 
effect  constitute  a  material  increase  in  such  salaries  over  what  they 
officially  receive.    These  perquisites  are  as  follows : 

Free  housing,  heavy  furniture,  water,  garbage  collection,  grass 
cutting,  gardening,  electricity  for  light  and  heat,  other  necessary 
fuel,  and.  for  bachelors  only,  free  janitor  service. 

Exclusive  of  electrical  service,  these  perquisites  cost  the  Govern- 
ment approximately  $5o 0.000  per  year  in  actual  outlay,  an  expendi- 
ture which  the  commission  does  not  believe  is  contemplated  by  their 
contracts  or  is  justifiable  in  view  of  the  high  pay  they  receive.  The 
argument  is  made  by  them  that  all  American  firms  operating  in 
tropical  countries  furnish  such  service  to  their  employees,  and  this 
of  itself  is  the  truth,  but  on  the  other  hand,  the  commission  is  con- 
vinced that  no  commercial  corporation  pays  in  addition  thereto  the 
high  wages  that  the  United  States  pays  its  operators  on  the  Isthmus, 
nor  are  conditions  in  other  places  comparable  with  those  existing  in 
the  Canal  Zone. 

Recommetuhifions. — It  is  therefore  recommended  that  rental  be 
charged  for  quarters  occupied  in  all  cases  where  such  quarters  do 
not  form  a  part  of  the  basic  wage,  and  that  the  rent  be  determined 
as  follows:  First,  write  down  the  book  value  of  the  quarters  to  its 
present  depreciated  value  of  $3,435,076,  and  upon  this  value  charge 
5  per  cent  for  amortization  and  interest.  Add  to  that  amount  the 
cost  of  repairs  due  to  ordinary  wear  and  tear,  plus  the  cost  of  garbage 
disposal  and  other  services  necessary  from  a  sanitary  point  of  view, 
and  prorate  the  resulting  amounts  among  the  houses  according  to 
the  amount  of  floor  space,  including  porches,  in  each  set  of  quarters. 
The  result  will  be  the  rental  for  housekeeping  quarters.  For 
bachelor  quarters  and  nonhousekeeping  quarters,  add  certain  fixed 
sums  for  janitor  service,  light,  and  water  as  set  forth  more  in  detail 
in  Appendix  Xo.  1.  page  40. 

It  is  further  recommended  that  the  repairs  to  furniture,  repairs 
to  stoves,  and  care  of  grounds  at  the  cost  of  the  Government  be 
entirely  stopped,  and  that  they  be  paid  for  when  desired  by  the  in- 
dividual concerned. 

It  is  further  recommended  that  a  charge  be  set  up  for  water  used 
by  the  employees  at  a  rate  comparable  with  rates  in  the  United  States, 
and  proportioned  to  cover  the  amount  of  water  used.  Meters  are 
not  recommended  on  account  of  their  cost. 


REPORT   OF    SPECIAL   PANAMA    CANAL    COMMISSION.  11 

It  is  further  recommended  that  electrical  service  for  light  and  heat 
be  charged  for  in  married  quarters,  according  to  consumption,  and 

that  all  such  quarters  be  metered,  the  charge  to  be  5  cents  per  kilo- 
watt hour,  as  elsewhere  recommended. 

BASES  FOR   RATES   OF  PAY. 

The  rates  of  pay  among  canal  employees  are  to  a  certain  extent 
fixed  by  law.  which  provides  that  they  shall  not  receive  to  exceed  25 
per  cent  more  than  is  paid  by  the  Federal  Government  to  similar 
employees  in  the  United  States.  This  provision  has  been  found  not 
to  cover  all  classes  of  employees,  for  there  are  certain  positions  on 
the  Isthmus  for  which  there  are  no  similar  positions  in  the  govern- 
mental service  in  the  United  States.  It  is  fairly  easy  to  handle  the 
class  of  positions  comparable  with  Government  positions  in  the 
United  States  and  determine  the  rate  of  pay,  but  in  the  class  where 
no  such  comparison  can  be  made  it  is  not  so  easy,  and  the  commis- 
sion found  several  instances  where  men  were  glaringly  overpaid  in 
the  canal  service.  In  most  of  these  instances  the  employee  had  been 
carried  over  from  the  construction  days,  and  his  pay  is  based  upon 
the  pay  he  received  in  the  construction  service,  and  although  his 
ability  is  the  same  as  it  formerly  was,  the  work  on  which  he  is  now 
employed  does  not  justify  either  the  employment  of  a  man  of  his 
ability  or  the  payment  of  the  wage  he  is  now  receiving.  In  certain 
other  cases  the  commission  is  convinced  that  precedents  were  used 
which  ought  not  to  have  applied,  and  that  the  bases  were  adopted 
either  through  lack  of  knowledge  of  the  special  conditions  governing 
that  class  of  service  or  through  negligence. 

Recommendation. — It  is  recommended  that  the  bases  upon  which 
canal  wages  are  determined  be  gone  over  carefully  and  that  they  be 
readjusted,  both  with  respect  to  the  qualifications  for  the  actual  posi- 
tions, which  are  often  too  high,  and  as  to  the  basic  rates  upon  which 
the  canal  wages  are  fixed,  and  that  care  be  taken  that  there  is  a  dis- 
interested person  on  the  board  at  all  times  thoroughly  conversant 
with  the  class  of  employment  under  consideration. 

That  in  deciding  on  the  basis  for  rates  of  pay  when  the  wage  is 
per  hour  consideration  be  given  to  the  fact  that  in  most  cases  in  the 
United  States,  especially  in  the  Xorth,  the  hourly  rate  is  fixed  on 
such  a  basis  as  to  give  the  man  a  suitable  wTage  per  year,  taking 
into  account  the  fact  that  he  can  not  work  during  certain  consider- 
able portions  of  the  year  on  account  of  inclement  weather. 

LEAVE  PRIVILEGES. 

It  is  believed  that  the  existing  leave  privileges  are  greater  than 
are  necessary  or  advisable.  They  were  established  as  an  inducement 
and  a  health  conservation  measure  during  construction  days  under 
conditions  which  no  longer  exist. 

Recommendations. — It  is  therefore  recommended  that  the  present 
annual  leave  policy  be  entirely  changed  and  that  hereafter  leaves  be 
granted  as  follows : 

(a)  Thirty  days'  annual  leave,  cumulative  for  three  years  only. 

(b)  At  the  end  of  one  year  no  travel  time  to  be  allowed. 

(c)  At  the  end  of  two  years.  7  days'  travel  time  in  addition  to  the  ordinary 
leave  to  be  allowed. 


12  REPORT   OF   SPECIAL   PANAMA   CANAL    COMMISSION. 

((/)  At  the  end  of  three  years,  14  days'  travel  time  in  addition  to  the  ordi- 
nary leave  to  be  allowed. 

(e)  The  present  policy  of  allowing  sick  leave  to  be  computed  into  ordinary 
leave  to  be  discontinued  and  an  employee  to  be  allowed  full  pay  for  days  sick 
under  the  same  rules  as  laid  down  for  similar  employees  in  the  civil  service 
in  continental  United  States. 

(f)  Leaves  to.  be  allocated  among  the  employees  so  as  to  distribute  them 
evenly  over  the  year  and  not  be  given  so  as  to  concentrate  all  leaves,  during 
any  short  period  of  the  year. 

(//)  For  employees  going  on  leave  an  allowance  of  $37.50  for  himself  and 
each  member  of  family  to  be  allowed  each  way  only  in  case  the  leave  is  taken 
at  the  end  of  two  or  three  years  and  the  employee  spends  his  leave  in  the 
United  States.  Member  of  family  within  this  meaning  to  be  wife  or  children 
only. 

OPEN-SHOP  POLICY. 

In  theory  the  open-shop  policy  is  followed  on  the  canal,  hut  in 
some  departments  it  is  only  a  theory  and  the  employees  are  com- 
pletely unionized.  The  commission  fully  believes  in  collective  deal- 
ing between  the  operatives  and  the  executives  on  the  canal  and  be- 
lieves that  thereby  misunderstandings  will  be  obviated  and  cordial 
relations  will  be  maintained,  but  it  is  absolutely  opposed  to  having 
the  policy  on  the  canal  dictated  by  labor  organizations  of  the  United 
States  or  elsewhere,  and  it  is  equally  opposed  to  outside  agencies 
coming  into  the  Canal  Zone  and  fomenting  dissatisfaction.  The 
Government  should  be  willing  to  pay  wages  which,  when  all  things 
are  taken  into  account,  compare  favorably  with  the  wages  paid  by 
private  agencies  for  the  same  service,  but  it  should  pay  no  more. 
Wages  paid  in  the  United  States  should  form  the  basis  for  the  wage 
scale  in  the  Canal  Zone,  and  it  is  intolerable  that  any  group  of  em- 
ployees should  be  able  to  force  higher  wages  or  better  conditions  by 
political  methods. 

Recommendations. — The  commission  recommends  that  the  gov- 
ernor be  directed  to  make  no  agreements  nor  to  have  any  under- 
standings with  the  canal  employees  or  an}^  class  thereof,  for  any 
period  of  time,  but  that  the  wages  be  adjusted  from  time  to  time  in 
accordance  with  the  law,  which  bases  the  canal  wages  on  the  paj^  of 
similar  employees  in  the  Government  service  in  the  United  States. 

It  is  further  recommended  that  for  positions  for  which  there  is 
no  corresponding  position  in  the  Government  service  of  the  United 
States,  wage  boards  of  the  canal  fix  an  average  wage  based  upon  the 
wages  actually  paid  for  similar  services  in  various  representative 
parts  of  the  United  States,  and  that  it  be  not  based  upon  any  arti- 
ficial rate  known  as  the  "  union  rate  "  which  is  not  actually  in  effect 
and  in  operation. 

It  is  further  recommended  that  the  governor  be  directed  not  to  deal 
with  labor  organizations  as  organizations,  but  that  he  may  deal  with 
committees  of  employees. 

It  is  further  recommended  that  the  open-shop  principle  be  actually 
put  into  effect  on  the  Isthmus  and  that  in  all  departments  a  substan- 
tial proportion  of  nonunion  men  be  employed. 

It  is  further  recommended  that  all  agreements  limiting  the  use  of 
tropical  labor  be  abrogated  and  that  hereafter  no  such  agreements 
be  entered  into  or  followed  and  that  this  include  all  understandings, 
such  as  the  edged-tool  understanding  and  the  Ford-car  understand- 
ing, the  canal  administration  hereafter  retaining  complete  freedom 


REPORT   OF   SPECIAL   PANAMA    CANAL   COMMISSION.  13 

of  action  as  to  its  policy  in  the  employment  of  union,  nonunion,  or 
tropical  labor. 

PANAMA  RAILROAD   CO. 

Notwithstanding  the  fact  that  the  Panama  Railroad  Co.  is  an  in- 
corporated company  chartered  under  the  State  of  New  York,  the 
operation  of  the  railroad  and  the  steamship  line  has  been  so  merged 
into  the  operation  of  the  canal  that  they  have  lost  their  identity. 

Due  to  this  merger  many  of  the  railroad  company's  activities  have 
been  absorbed  by  the  canal  and  are  being  operated  by  the  canal  ad- 
ministration more  to  its  benefit  than  the  railroad.  The  commission 
believes  that  the  present  deficit  is  largely  attributable  to  this  merger 
and  is  convinced  that  if  all  railroad  activities  be  returned  to  the  rail- 
road management  that  the  road  will  show  a  profit  under  the  present 
tariffs  and  that  in  all  probability  can  do  so  even  with  reduced  tariffs. 

Recommendations. — It  is  recommended  that  the  operations  of  the 
Panama  Railroad  Co.  be  entirely  divorced  from  those  of  the  canal, 
and  that  in  the  future  the  railroad  and  steamship  line  of  the 
Panama  Railroad  Co.  be  operated  and  accounted  for  as  are  similar 
commercial  activities  in  business. 

ENCOURAGEMENT  OE  AGRICULTURE. 

Under  the  present  policy  the  Canal  Zone  has  practically  been  de- 
populated, and  generally  speaking  there  is  no  agriculture  or  truck 
gardening  encouraged.  It  is  believed  that  this  is  an  undesirable 
condition  from  three  points  of  view : 

(a)  The  local  food  supply  on  the  canal  is  very  deficient  in  quantity  and 
quality.  It  is  believed  that  as  a  military  measure  the  Canal  Zone  should  be 
as  nearly  self-supporting  as  possible  and  that  agriculture  should  be  encouraged 
in  every  possible  way. 

(6)  The  prices  charged  for  food  supplies  that  could  be  raised  locally  are 
exorbitant  and  the  amount  of  produce  raised  is  very  small.  This  operates  as 
a  hardship  on  the  employees  and  is  a  ridiculous  situation  in  a  tropical  country, 
where  local  food  products  should  be  plentiful  and  cheap. 

(c)  It  is  exceedingly  desirable  for  many  reasons  to  have  a  large  force  of 
common  labor  available  for  use  on  the  canal,  and  a  great  number  of  West 
Indians  have  been  encouraged  to  remain  in  the  zone  in  order  to  have  this 
pool  of  labor.  The  number  desired  is  far  greater  than  can  be  given  continuous 
employment,  and  as  a  result  these  West  Indians  are  employed  only  about  half 
the  time. 

The  hourly  wages  that  they  are  paid  are  better  than  those  paid 
anywhere  else  around  the  Caribbean,  but  notwithstanding  this  the 
total  amount  received  per  family  is  not  sufficient  to  support  the  aver- 
age family.  This  was  the  conclusion  of  the  British  board  that  inves- 
tigated the  subject,  and  is  the  conclusion  of  the  commission.  The 
West  Indian  is  naturally  a  farmer,  although  a  poor  one,  and  is  used 
to  having  a  small  plot  of  ground  upon  which  he  can  raise  his  essen- 
tial food  requirements.  If,  in  addition  to  the  food  he  can  raise  on  a 
small  plot  of  ground,  he  is  able  to  earn  a  small  amount  in  money, 
he  can  live  comfortably  on  a  far  smaller  salary  than  is  now  paid  him. 
In  the  Canal  Zone  he  has  no  land  and  no  opportunity  to  do  the  little 
farming  necessary  for  his  food  requirements,  and  the  total  amount 
of  money  he  receives  from  the  canal  is  insufficient  for  his  needs  under 
the  present  high  cost  of  urban  living  in  the  zone. 


14  EEPOET    OF    SPECIAL    PANAMA   CANAL    COMMISSION. 

For  the  reasons  above  set  forth,  it  is  considered  highly  essential 
that  the  Canal  Zone  be  thrown  open  to  truck  gardening  and  farming 
along  the  line  of  the  railroad.  There  can  be  no  objection  to  this  from 
a  military  point  of  view,  for  the  methods  of  warfare  have  so  changed 
in  the  past  10  years  that  the  cleared  ground  along  the  railroad  is 
not  a  military  danger.  The  commission  was  informed  b}^  tlie  chief 
health  officer  that  if  the  natives'  houses  are  grouped  in  small  villages 
around  which  their  farms  are  located,  there  would  be  no  objection 
from  a  sanitary  point  of  view. 

Recommendations. — It  is  therefore  recommended  that  the  Canal 
Zone,  and  especially  that  part  along  the  railroad  and  lake,  be  thrown 
open  to  agriculture  immediately,  and  that  agriculture  and  truck 
gardening  be  encouraged  in  every  way. 

It  is  further  recommended  that  the  Panama  Railway  be  the  agency 
through  which  the  natives'  houses  are  constructed  and  the  neces- 
sary land  cleared  to  start  this  agriculture. 

It  is  further  recommended  that  the  open  pasture  lands  near  the 
railwTay  stations  be  the  first  lands  opened  up. 

It  is  further  recommended  that  a  farm  demonstration  bureau  be 
established  to  help  the  native  farmers,  both  as  to  what  they  can  best 
raise  and  as  to  how  they  can  obtain  the  best  results. 

It  is  further  recommended  that  to  such  extent  and  under  such  and 
similar  regulations  as  the  public  domain  in  continental  United  States 
is.  available  to  beneficial  use  through  private  agencies  that  the 
Canal  Zone  be  thrown  open  to  the  public  not  only  for  agriculture 
but  also  for  other  purposes. 

NEW  AUDITING   SYSTEM. 

In  its  investigations  of  the  canal,  the  commission,  on  account  of  the 
auditing  system  in  vogue,  obtained  only  with  great  difficulty  the  in- 
formation that  it  desired  in  regard  to  the  financial  condition  of  the 
various  activities.  The  auditor  performs  very  few  of  the  real  func- 
tions of  an  auditor,  but  is  rather  a  sort  of  general  manager  of  the 
canal  administration,  without  having  the  name,  and  without  having 
a  proper  organization  to  perform  those  functions.  The  auditing 
system  as  at  present  installed  does  not  give  a  correct  view  of  the 
financial  standing  of  the  various  activities,  and  the  commission  re- 
gards the  establishing  of  a  proper  auditing  system  as  one  of  the  prime 
requisites  to  the  economical  operation  of  the  canal. 

Recommendations. — That  the  present  auditor's  office  be  totally  re- 
organized as  set  forth  in  greater  detail  elsewhere  in  this  report,  and 
that  a  recognized  firm  of  chartered  accountants  be  employed  to  set 
up  a  modern  system  of  business  accounting,  including  such  specific 
accounts  as  are  desired  for  the  use  of  Congress,  and  to  reorganize  the 
entire  auditor's  office  in  conformity  therewith,  including  such  changes 
as  will  carry  out  such  recommendations  of  the  commission  as  may  be 
directed  by' the  Secretary  of  War. 

It  is  further  recommended  that  if  the  preceding  recommendation 
be  not  approved  that  the  duties  of  the  auditor  be  entirely  revised  and 
restated,  and  that  in  the  future  he  be  an  auditor  pure  and  simple  and 
be  divested  of  the  many  other  miscellaneous  functions  that  he  now 
exercises,  and  that  as  auditor  he  install  a  modern  system  of  business 
accounting  recommended  in  the  preceding  paragraph. 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  15 

It  is  further  recommended  that  there  be  set  up  in  the  canal  adminis- 
tration, an  executive  officer  whose  time  shall  be  devoted  to  the  detailed 
examination  and  coordination  of  the  various  activities  of  which  the 
canal  organization  is  made  up.  This  executive  officer  should  be  a 
man  who,  in  commercial  life,  would  correspond  with  the  general 
manager  of  a  private  corporation.  lie  should  relieve  the  governor  of 
all  executive  details,  and  for  this  purpose  we  recommend  that  the 
services  of  a  man  with  wide  experience  in  large  business  undertak- 
ings be  obtained. 

EXECUTIVE  VERSUS  OPERATIVE  PAY. 

The  commission  desires  to  invite  attention  to  the  fact  that  the 
modern  business  policy,  and  particularly  the  policy  of  business 
agencies  conducting  operations  in  tropical  countries,  is  to  employ 
high-grade  executives,  pay  them  well,  and  hold  them  responsible  for 
results.  They  employ  as  few  of  these  executives  as  possible,  and  trust 
to  their  energy  and  ability  to  bring  about  results  with  low-grade 
employees,  and  they  do  not  spend  the  larger  sums  that  would  be 
necessary  to  fill  other  minor  positions  with  highly  paid  operatives. 
On  The  Panama  Canal  the  policv  is  apparently  the  opposite.  The 
operatives  are  individually  exceedingly  skilled,  and  their  pay  is  cor- 
respondingly high,  whereas  the  executives  are  not  paid  salaries  com- 
mensurate with  their  responsibility,  and  in  many  cases  the  results 
show  in  the  poor  return  to  the  Government.  The  commission  believes 
that  the  first-mentioned  practice  is  not  only  the  best,  but  is  the  most 
economical. 

Recommendations. — It  is  therefore  recommended  that  the  salaries 
of  the  canal  executives  be  increased  wherever  necessary  to  obtain  and 
keep  the  services  of  high-class  men  competent  to  handle  the  large 
affairs  for  which  they  are  responsible  to  the  Government.  The  pay 
of  the  governor  ought  to  be  increased  50  per  cent,  and  similnr 
increases  made  for  such  of  his  chiefs  of  divisions  as  prove  competent 
to  handle  the  large  affairs  in  their  charge,  and  wherever  necessary 
under  the  reorganization,  new  men  should  be  employed  especially 
fitted  for  the  positions. 

The  foregoing  recommendations  are  those  which  the  commission 
considers  as  fundamental,  and  to  them  it  invites  your  first  considera- 
tion. Our  report  will  now  take  up  in  detail  the  various  divisions  of 
the  canal  administration,  giving  for  each  a  brief  summary  of  condi- 
tions as  we  found  them,  and  following  each  with  general  recom- 
mendations in  regard  thereto.  No  particular  arguments  nor  de- 
tailed recommendations  will  be  made  in  this  part  of  the  report,  the 
support  for  them  will  be  found  in  all  cases  in  the  individual  reports 
of  the  commissioners  in  the  appendices  attached  hereto,  and  in  the 
detailed  recommendations  at  the  end  of  each  appendix. 

DIVISION    OP    SCHOOIS. 

The  public  school  sj^stem  of  the  zone  consists  of  grade  schools  for 
the  colored  children  and  grade  and  high  schools  for  the  white  chil- 
dren. There  are  63  white  teachers  employed  in  the  white  grammar 
schools  and  24  colored  teachers  in  the  colored  grammar  schools. 
There  are  17  high-school  teachers  in  the  white  high  schools.  There 
are  1,711  white  pupils  in  the  grammar  schools,  or  approximate!}7  27 


16  REPORT   OF    SPECIAL   PANAMA    CANAL    COMMISSION. 

pupils  per  teacher.  There  are  1.199  colored  pupils  enrolled  in  the 
colored  grammar  schools,  or  an  average  of  about  50  pupils  per 
teacher.  There  is  an  average  of  16  pupils  per  teacher  in  the  high 
schools. 

After  a  very  thorough  inspection  of  the  school  situation  in  the 
Canal  Zone  the  commission  is  convinced  that  in  so  far  as  the  white 
schools  are  concerned  they  are  superior  in  practically  every  way  to 
any  with  which  we  are  familiar  in  similar  localities  in  the  United 
States.  The  qualifications  for  the  teachers  are  higher  and  the  physi- 
cal condition  of  the  schools  is  considerably  better  than  in  the  United 
States.  The  schools  are  not  crowded  and  the  number  of  teachers  is 
sufficient  to  give  proper  instruction.  The  pupils,  as  a  rule,  seem  to 
be  brighter,  better  dressed,  and  more  alert  than  are  those  in  similar 
schools  at  home. 

Conditions  in  the  colored  schools  were  not  so  satisfactory  and  it 
was  found  that  they  were  overcrowded  and  had  a  decided  deficiency 
in  teachers.  The  commission  is  of  the  opinion  that  good  schools  for 
the  colored  children  are  very  necessary  and  recommends  that  the 
colored-school  facilities  be  somewhat  improved  and  that  the  salaries 
of  the  teachers  be  slightly  increased. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
fully  on  page  -16,  Appendix  1. 

POLICE  AND  TIRE  DIVISION. 

The  fire  and  police  protection  in  the  Canal  Zone  are  combined  in 
a  single  service  under  the  chief  of  fire  and  police.  The  police  force 
consists  of  10  officers,  15  sergeants,  115  privates,  and  35  second-class 
privates.  The  rates  of  pay  of  the  police  are  based  on  the  rates  paid 
in  the  District  of  Columbia,  but  in  no  case  are  they  given  more  than 
14  per  cent  increase  over  the  rate  for  the  District  of  Columbia.  The 
colored  policemen  are  paid  from  $720  to  $960  per  annum. 

Approximately  74  men  are  on  what  is  called  "  special  duty  "  in 
connection  with  activities  not  properly  pertaining  to  municipal  po- 
lice work,  such  as  in  charge  of  prisoners  in  penitentiary,  or  of  work- 
ing parties  of  prisoners,  watchmen  in  public  buildings,  watchmen  at 
piers,  and  on  lake  patrols. 

The  local  prisons  and  the  penitentiary  were  found  to  be  well  kept 
and  not  overcrowded.  Ultimately  provision  must  be  made  for  a  new 
and  modern  penitentiary,  but  it  is  not  believed  to  be  necessary  until 
the  transcontinental  road  is  completed. 

The  fire  department  consists  of  the  chief,  deputy  chief,  2  captains, 
6  lieutenants,  2  sergeants,  and  32  privates.  The  entire  department 
is  white  and  the  personnel  and  equipment  reflect  great  credit  on  the 
administration. 

The  department  is  organized  on  the  one-platoon  system,  and  the 
members  are  therefore  on  duty  three  days  in  four.  It  was  ascer- 
tained that  of  610  cities  in  the  United  States  having  paid  fire  de- 
partments approximately  60  per  cent  are  organized  on  the  two- 
platoon  basis. 

The  pay  of  the  firemen  is  based  on  that  of  firemen  in  the  District 
of  Columbia,  but  in  no  case  do  they  receive  more  than  11  per  cent 
over  the  base  pay.  The  number  of  fire  calls  in  the  Balboa  District 
during  the  fiscal  year  1921  was  71,  or  approximately  6  per  month. 


EEPOET   OF   SPECIAL  PANAMA   CANAL   COMMISSION.  17 

The  number  of  calls  in  the  Cristobal  District  was  44,  or  less  than 
4  per  month. 

The  commission  believes  there  should  be  an  increased  use  of  silver 
employees  in  both  the  police  and  fire  departments,  and  that  suffici- 
ent saving  can  thereby  be  made  to  permit  the  establishment  of  the 
two-platoon  system  in  the  fire  department  and  to  improve  the  colored 
schools  as  recommended,  without  any  increase  in  the  total  cost  of 
these  divisions. 

Detailed  recommendations  to  accomplish  this  result  are  set  forth 
on  page  47,  Appendix  1. 

DIVISION  OF  CIVIL  AFFAIRS. 

This  division  includes  the  bureau  of  post,  customs,  shipping  com- 
missioner, and  administration  of  estates,  which  in  our  opinion  are 
neither  necessary  nor  proper  activities  of  the  Canal  Zone  govern- 
ment. The  commission  believes  that  all  the  functions  of  this  division 
should  be  transferred  to  the  departments  of  the  Government  by 
which  they  are  controlled  in  the  United  States  proper,  and  that,  after 
these  transfers  are  effected,  this  division  should  be  abolished. 

Detailed  recommendations  to  effect  these  changes  will  be  found  on 
page  18,  Appendix  1. 

COURTS. 

The  court  system  of  the  Canal  Zone  consists  of  one  district  court 
and  two  magistrate  courts.  There  is  a  United  States  district  attorney 
and  a  United  States  marshal,  who  has  a  deputy  marshal.  After  full 
consultation  and  consideration  the  commission  is  of  the  opinion  that 
the  duties  of  marshal  can  be  performed  by  the  present  chief  of  police. 

It  was  found  that  there  is  no  court  now  constituted  to  hear  the 
cases  of  juvenile  delinquents,  of  which  there  is  a  considerable  num- 
ber.   It  is  believed  that  provision  should  be  made  for  such  a  court. 

Detailed  recommendations  to  accomplish  these  results  will  be  found 
on  page  48,  Appendix  1. 

MUNICIPAL  DIVISION. 

The  municipal  engineer  has  charge  of  what  would  correspond  to 
the  city  engineer's  work  in  a  municipality  in  the  United  States.  He 
performs  these  functions  not  only  for  the  Canal  Zone,  but  also  for 
the  municipalities  of  Panama  and  Colon.  His  force  consists  of  90 
gold  employees  and  770  silver  employees. 

This  division  has  recently  had  consolidated  with  it  practically  all 
of  the  division  known  as  the  Building  Division,  and  as  a  result  reor- 
ganization was  in  progress.  The  municipal  engineer  has  made  and 
is  planning  to  make  within  the  next  few  months  a  considerable  re- 
duction in  force  and  a  consolidation  of  the  activities  which  are  now 
operated  as  separate  sections  of  his  work.  In  our  recommendations 
it  will  be  treated  as  though  no  reorganization  were  in  progress  or 
contemplated  by  the  municipal  engineer  himself. 

The  commission  found  that  this  division  was  very  much  over- 
organized  and  that  empk>3Tees  were  in  many  instances  overpaid  for 
the  work  that  they  were  actually  performing.    In  some  cases  the  num- 

76736—22 3 


18  REPORT   OF   SPECIAL   PANAMA    CANAL    COMMISSION. 

ber  of  employees  is  much  in  excess  of  present  needs  and,  in  general,  a 
very  considerable  reduction  in  force  can  be  made.  This  is  especially 
true  if  this  and  several  other  small  divisions  can  be  consolidated. 

Detailed  recommendations  to  accomplish  these  results  are  shown 
on  pages  49-51,  Appendix  1. 

RELATIONS   WITH    PANAMA. 

Matters  concerning  the  relations  between  the  canal  administration 
and  the  Republic  of  Panama  are  handled  through  the  executive  sec- 
retary to  the  governor.  There  is  no  other  special  personnel  engaged 
exclusively  on  this  work.  There  are  several  matters  which  have 
formed  continual  bases  for  argument  between  the  canal  authorities 
and  those  of  the  Republic  for  some  time  and  which  will  be  separately 
considered. 

The  Republic  of  Panama  has  taken  the  stand  that  the  commis- 
saries ought  to  sell  only  necessities  to  employees  of  the  canal.  In  the 
opinion  of  the  commission  they  have  ignored  the  word  "  convenient " 
in  section  13  of  the  treaty.  It  is  believed  that  their  contention  is 
without  foundation  and  that  the  canal  authorities  are  absolutely 
justified  in  bringing  in  free  of  duty  and  selling  to  the  employees  any- 
thing that  good  policy  dictates. 

It  is  further  complained  that  the  commissaries  sell  certain  supplies 
to  ships  transiting  the  canal  or  touching  at  Cristobal.  This  custom 
arose  in  the  early  days  of  the  canal  and  was  undertaken  because 
there  were  no  firms  in  Panama  or  Colon  organized  and  equipped  to 
furnish  this  service  to  ships.  In  the  opinion  of  the  commission  the 
supplying  of  ships  transiting  the  canal  is  not  a  proper  function  of 
the  Federal  Government  except  in  so  far  as  supplies  can  not  reason- 
ably be  otherwise  obtained.  It  is  believed  that  this  Government 
should  encourage  rather  than  hamper  by  unnecessary  rules  and  regu- 
lations the  practice  of  allowing  representatives  of  local  firms  to  go 
aboard  ships  and  solicit  business  and  that  every  encouragement 
should  be  given  to  the  development  of  private  sources  of  supply. 

The  Panaman  representatives  urged  that  certain  lands  in  the  cities 
of  Panama  a;nd  Colon  should  be  turned  over  to  the  Panaman  Govern- 
ment. It  is  not  believed  that  there  is  any  basis  for  this  contention, 
inasmuch  as  the  treaty  specifically  provides  that  these  lands  in  the 
cities  of  Panama  and  Colon  shall  become  the  property  of  the  United 
States. 

They  further  contended  that  in  the  debt  set  up  against  the  Re- 
public of  Panama  for  municipal  improvements  in  Panama  and  Colon 
is  included  the  cost  of  paving,  sewers,  and  water  service  for  certain 
lands  belonging  to  the  Panama  Railroad.  This  is  true  as  far  as  the 
property  existing  at  the  time  of  the  treaty  is  concerned,  but- is  not 
true  with  regard  to  the  conditions  that  have  obtained  since  in  the 
addition  of  land  to  the  city  of  Colon  by  the  reclaiming  of  swamp 
land.  The  tots  in  the  old  cities  of  Panama  and  Colon  belonged  to 
the  railroad  at  the  time  the  treaty  was  written  and  therefore  the  cost 
of  these  improvements  was  certainly  contemplated  by  the  treaty. 
The  cost  of  improvements  in  the  newly  reclaimed  land  has  been  borne 
by  the  Panama  Railroad  and  The  Panama  Canal  and  has  not  been 
added  to  the  debt  of  the  Panaman  Government. 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION .  19 

It  was  claimed  that  the  freight  rates  to  the  canal  commissaries 
were  less  than  those  to  merchants  iii*  the  city  of  Panama.  This  may 
or  may  not  be  true,  as  the  commissary  pays  a  lump  sum  to  the  Pan- 
ama Railroad  regardless  of  the  amount  of  freight  curried.  Elsewhere 
in  this  report  it  is  recommended  that  this  practice  be  discontinued 
and  that  the  commissary  be  charged  exactly  what  other  patrons  of 
the  road  are  charged  for  similar  service. 

The  committee  representing  the  Panaman  Government  desired  that 
the  United  States  determine  definitely  its  needs  as  regards  land  for 
fortifications  and  other  purposes  in  the  Republic  of  Panama.  To  do 
this  the  Federal  Government  would  be  giving  up  certain  just  rights 
for  which  it  paid  the  sum  of  $10,000,000  and  for  which  it  is  paying 
annually  the  sum  of  $250,000  to  the  Republic  of  Panama. 

Similarly  the  committee  desired  that  in  case  the  United  States 
wishes  further  territory  for  any  purpose,  such  as  the  island  of  To- 
bago for  fortification  purposes,  this  Government  should  not  only  pay 
the  Republic  of  Panama  for  surrendering  its  sovereign  rights  but 
should  pay  the  owners  as  well.  This  contention  is  believed  to  be 
entirely  without  merit,  as  it  is  fully  covered  in  the  treaty,  and  the 
right  to  acquire  such  further  lands  as  might  be  needed  was  purchased, 
among  other  things,  at  the  cost  of  $10,000,000. 

The  Panama  committee  also  claimed  that  the  treaty  in  article  10 
does  not  exempt  from  Panaman  taxes  certain  property  of  the  Panama 
Railroad  existing  in  Panama  and  Colon  inasmuch  as  the  activities 
exempted  were  only  those  "  appertaining  to  the  railroad."  This  is 
an  involved  question  the  determination  of  which  depends  entirely 
upon  the  terms  of  charter  and  the  concession  under  which  the  rail- 
road operates  as  well  as  on  the  terms  of  the  treaty  itself  and  is  not 
of  such  a  nature  as  the  commission  feels  qualified  to  handle. 

An  examination  of  the  financial  relations  between  the  Republic  of 
Panama  and  the  canal  shows  that  the  annual  installments  on  the 
debt  of  the  Panaman  Republic  for  the  construction  of  public  works 
in  the  cities  of  Panama  and  Colon  are  not  being  fully  paid,  although 
the  rates  charged  for  water  rents  are  very  high.  The  part  of  this 
debt  arising  from  the  city  of  Colon  is  gradually  being  paid,  but  the 
part  arising  from  the  city  of  Panama  is  growing,  until  the  total 
now  amounts  to  $62,256.12  for  Panama  and  $11,592.05  for  Colon. 
In  spite  of  this  fact  the  United  States  Government  is  paying  the 
Republic  of  Panama  $250,000  per  annum  promptly  and  regularly. 

A  local  attorney  came  before  the  commission  and  submitted  an 
argument  to  the  effect  that  the  proceedings  and  decisions  of  the  joint 
commission  provided  for  in  the  canal  treaty  did  not  give  a  clear  title 
to  the  United  States  for  the  lands  in  the  Canal  Zone,  his  argument 
being  that  the  proceedings  were  entirely  in  personam  whereas  they 
should  have  been  in  rem.  He  contends  that  the  Federal  Govern- 
ment should,  through  the  district  court,  institute  condemnation  pro- 
ceedings and  that  the  action  of  the  joint  commission  should  be  con- 
sidered only  as  that  of  a  board  of  appraisal.  In  this  matter  the  com- 
mission is  advised  that  such  legal  tests  as  have  been  made  of  the 
powers  of  the  joint  commission  have  resulted  in  upholding  its  juris- 
diction. Furthermore  it  would  seem  to  be  a  matter  in  which  the 
United  States  should  not  take  action  which  might  be  'construed  as  an 
admission  of  a  defect  in  its  title.     As  representative  of  local  land- 


20  REPORT    OF   SPECIAL   PANAMA   CANAL    COMMISSION. 

holders,  this  attorney  is  not  believed  to  be  without  personal  interest 
in  the  matter. 

Considerable  consideration  has  been  given  by  the  commission  to 
the  question  of  the  advantage  to  the  United  States  of  making  Cris- 
tobal a  port  of  entry  to  the  United  States.  This  matter  has  been 
under  discussion  in  various  quarters  for  some  time  and  much  has 
been  urged  in  favor  thereof.  It  has  been  suggested  that  this  can  not 
be  accomplished  without  the  abrogation  of  the  so-called  Taft  agree- 
ment. The  canal  authorities  believe,  and  the  commission  concurs  in 
the  belief,  that  the  time  has  arrived  when  both  the  treaty  with  the 
Republic  of  Panama  and  the  Taft  agreement  should  be  revised  and 
rewritten  in  the  light  of  present-day  conditions. 

The  commission  is  convinced  that  direct  action  between  the  canal 
administration  and  the  Panaman  Government  leads  to  friction  rather 
than  to  the  adjustment  of  difficulties  and  it  is  further  convinced  that 
the  matters  now  pending  between  the  Panaman  Government  and  the 
United  States  relative  to  questions  arising  from  the  administration 
of  the  Canal  Zone  should  be  taken  up  and  settled  in  the  immediate 
future  in  order  that  both  parties  may  know  where  they  stand  and 
that  the  present  conditions  shall  not  be  aggravated  by  uncertainty 
as  to  what  the  final  decision  will  be  or  by  whom  it  will  be  made. 

Detailed  recommendations  which,  if  put  into  effect,  will  improve 
the  relations  with  the  Panaman  Government  are  given  on  pages 
51-53,  Appendix  7. 

RELATIONS   WITH   THE   MILITARY. 

The  personal  relations  between  the  officials  of  the  canal  and  the 
officers  of  the  military  garrison  are  as  cordial  as  usually  obtain 
between  officers  of  the  different  branches  of  the  service,  but  officially 
there  is  much  to  be  desired.  The  military  authorities  lay  undue 
stress  on  the  necessity  of  certain  things  from  a  military  point  of 
view,  basing  their  arguments  on  what  might  happen  in  case  of  war. 
On  the  other  hand,  the  canal  authorities  emphasize  too  strongly  the 
necessity  that  no  ship  be  delayed  a  minute  in  its  transit  of  the  canal 
beyond  the  time  physically  necessary  to  put  it  through.  It  is  be- 
lieved that  if  both  parties  would  give  and  take  to  a  greater  extent 
there  would  be  no  question  arising  that  could  not  be  settled  to  the 
satisfaction  of  all  concerned  bj^  the  authorities  in  the  zone. 

The  question  of  most  immediate  importance  between  the  canal 
authorities  and  the  military  authorities  is  that  of  a  bridge  across  the 
locks  in  the  neighborhood  of  Pedro  Miguel.  There  is  at  present  a 
garrison  of  about  2,500  persons  on  the  west  side  of  the  canal.  There 
is  no  general  means  for  wheeled  vehicles  to  cross  the  canal.  An 
agreement  was  reached  between  the  commanding  general  and  the 
Governor  of  the  zone  looking  to  the  construction  of  a  swinging  bridge 
at  this  point,  but  its  use  was  to  be  limited  to  time  of  war  and  to  a 
short  period  annually  in  time  of  maneuvers.  In  the  first  place  the 
cost  of  this  bridge  is  estimated  as  something  over  one-half  a  million 
dollars,  which  puts  its  construction  far  into  the  future,  and  in  the 
second  place  the  limitation  on  its  use  would  not  serve  the  garrison 
on  the  west  side  of  the  canal.  At  the  present  time  there  is  a  means 
of  passage  for  foot  passengers,  animals,  and  small  vehicles  as  large 
as  a  Ford  car  across  the  top  of  the  lower  guard  gates  of  the  lock.    A 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  21 

posted  sign  prohibits  the  passage  of  vehicles  weighing  more  than  G 
tons,  but  inasmuch  as  the  3-ton  truck  will  ordinarily  not  exceed 
this  weight  when  loaded,  this  passage  can  be  made  suitable  to  all  the 
present  transportation  needs  in  time  of  peace.  We  believe  that  the 
lower  guard  gates  of  the  Pedro  Miguel  locks  should  be  adapted  for 
use  as  a  bridge  for  general  highway  traffic. 

There  is  a  constant  demand  for  a  road  across  the  Isthmus,  but  up 
to  the  present  time  its  construction  has  been  impossible  owing  to  the 
fact  that  it  was  assumed  that  such  a  road  would  have  to  go  around 
the  east  end  of  Gatun  Lake  and  that  the  resulting  road  would  be  over 
100  miles  in  length.  It  is  believed  that  no  such  length  is  necessary, 
but  that  the  present  road  from  Panama  to  Gamboa  can  be  extended 
to  Monte  Lirio  and  thence  can  parallel  the  railroad  across  the  lake, 
using  the  railroad  embankment  over  the  critical  points  in  the  lake 
where  large  fills  would  be  necessary  for  the  construction  of  an  inde- 
pendent roadbed.  This  has  already  been  proposed  by  the  military 
and  rejected  bj  the  canal  authorities. 

The  need  for  this  road  is  great  enough  so  that  the  slight  inconven- 
ience to  the  Panama  Railroad  ought  to  be  accepted  by  the"  War  De- 
partment and  the  use  of  the  railroad  embankment  approved  wher- 
ever necessary  to  cross  a  sheet  of  water.  The  roadbed  is  built  for 
a  double  track  and  has  a  sufficient  shoulder  on  which  to  support  the 
carriers  for  the  electric  transmission  line.  Without  disturbing  the 
present  roadbed,  it  is  believed  that  sufficient  room  can  be  obtained 
for  a  suitable  highway  merely  by  moving  the  transmission  poles 
nearer  to  the  railway  track  and  setting  them  at  an  angle. 

The  venereal  situation,  not  only  in  the  Arm}7  but  among  the  em- 
ployees of  the  canal,  is  far  worse  than  it  ought  to  be  under  existing 
conditions. 

Panama  City  is  a  part  of  the  Panaman  Republic,  and  as  such  it 
is  impossible  to  do  more  than  the  local  government  will  agree  to. 
In  Colon,  however,  a  different  situation  exists  in  that  all  the  land# 
in  the  city  is  owned  by  the  Panama  Railroad  and  that  company 
can  dictate  in  its  leases  any  uses  for  which  the  property  must?  not 
be  used.  Many  houses  of  prostitution  undoubtedly  will  continue  to 
exist  for  a  long  time  under  the  old  leases  made  by  the  railroad,  but 
the  use  of  the  Panama  Railroad  property,  which  in  effect  is  United 
States  Government  property,  for  this  purpose  ought  to  be  stopped 
where  possible  and  all  future  leases  should  have  an  explicit  proviso 
that  the  land  in  question  can  not  be  used  for  such  purposes. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  53-54.  Appendix  1. 

HEALTH  DEPARTMENT. 

The  health  department  of  the  Canal  Zone  consists  of  the  fol- 
lowing three  divisions :  Hospital  division,  sanitation  division,  quar- 
antine division. 
t  The  work  of  these  divisions  is  done  in  a  splendid  manner  and  the 
results  obtained  are  beyond  criticism,  unless  it  be  that  the  work  is 
too  thoroughly  done.  This  is  exceedingly  difficult  to  prove,  inas- 
much as  a  great  deal  of  it  is  preventive  work  and  no  one  can  say 
whether  a  less  amount  of  prevention  would  accomplish  reasonable 
results  because  what  would  be  reasonably  satisfactory  is  always  a 
matter  of  opinion. 


22  REPORT   OF    SPECIAL   PANAMA   CANAL   COMMISSION. 

There  are,  however,  certain  changes  in  organization  and  opera- 
tion that  can  be  made  which  will  greatly  lessen  the  net  cost  to  the 
United  States  for  the  operation  and  maintenance  of  these  activities. 

HOSPITAL  DIVISION. 

The  hospital  division  includes  hospitals  at  the  following  places : 
Ancon.  Corozal  (insane  and  helpless  asylum),  Colon,  Santo  Tomas, 
and  Palo  Seco  (leper  as}"lum),  and  dispensaries  at  Ancon,  Balboa, 
Pedro  Miguel,  and  Gatun. 

The  Ancon  Hospital,  which  is  the  principal  hospital  of  the  zone, 
is  one  of  the  most  perfect  and  well  appointed  hospitals  that  has  come 
within  the  observation  of  the  commission.  The  hospital  operating 
cost  during  the  calendar  year  1919,  was  $492,366  and  in  the  calendar 
3rear  1920,  $592,691.  The  revenue  during  the  same  two  years  was 
$228,367  and  $318,776.  respectively;  the  net  cost  to  the  Government 
during  the  two  years  being  $263,979  and  $243,915,  respectively,  with- 
out counting  interest  or  depreciation. 

The  average  number  of  patients  treated  in  the  hospital  daily  was 
438  during  1919  and  427  during  1920;  and  during  the  same  years 
5,100  operations  and  5,092  operations  were  performed  in  addition  to 
314  and  289  confinement  cases,  respectively.  The  .average  cost  per 
patient  during  the  same  years  was  $3.08  and  $3.80,  respectively.  The 
cost  of  food  is  approximately  $1.05  for  white  patients  and  $0.53  for 
colored  patients.  The  increase  in  cost  during  the  year  1920  over  that 
of  1919  is  practically  all  due  to  increase  in  salaries  and  increase  in 
the  cost  of  food  supplies. 

The  salaries  of  the  subordinates  are  based  upon  the  wages  of  per- 
sons similarly  employed  in  the  United  States  and  are  correspond- 
ingly high.  The  salaries  of  the  officials  are  not  what  they  ought  to 
be  compared  with  wages  paid  to  artisans  in  the  Canal  Zone. 

There  are  21  doctors  on  duty  in  this  hospital  besides  the  superin- 
tendent, as  against  22  doctors  in  January,  1919,  when  the  total  force 
employed  was  about  33  per  cent  larger  than  it  now  is.  It  is  under- 
stood that  no  medical  officer  of  the  Army  or  Navy  is  permitted  to 
operate  in  this  or  any  other  hospital  of  the  Canal  Zone.  In  this  con- 
nection, attention  is  called  to  the  surprising  fact  that  all  the  doctors 
as  well  as  the  nurses  are  members  of  labor  unions  affiliated  with  the 
American  Federation  of  Labor. 

The  eight-hour  law  is  applied  to  the  nurses  and  hence  the  large 
number  of  nurses,  but  even  on  this  basis  the  number  is  excessive. 

The  cost  of  operation  of  this  hospital  has  been  compared  with  that 
of  other  hospitals  in  various  parts  of  the  United  States  and  it  is 
found  that  the  Ancon  Hospital  compares  very  favorably  in  practi- 
cally all  cases. 

The  laboratory  of  the  Ancon  Hospital  corresponds  to  the  munici- 
pal laboratory  in  a  large  city,  and  it  is  believed  that  all  chemi- 
cal laboratory  work  of  the  zone  should  be  concentrated  in  this 
laboratory. 

At  the  present  time  no  charge  is  made  either  for  consultations  at 
dispensaries  of  which  there  are  an  abnormally  large  number,  or  for 
board  for  employees  while  in  hospital.  It  is  not  believed  that  either 
of  these  free  services  is  justified  or  should  be  continued. 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  23 

The  commission  believes  that  employees  should  be  charged  for 
their  subsistence  while  in  hospitals,-' that  the  Panama  Railroad  Co. 
should  pay  for  the  hospital  and  sanitary  services  rendered  on  ac- 
count of  its  employees,  and  that  there  should  be  a  reduction  in  per- 
sonnel actually  employed  in  the  hospitals. 

We  are  also  strongly  of  the  opinion  that  civilian  doctors  and 
surgeons  in  the  hospitals  should  be  replaced  by  medical  officers  of 
the  Army  and  that  serious  consideration  should  be  given  to  turning 
over  the  hospitals  to  the  Army  Medical  Corps  for  operation. 

Detailed  recommendations  to  accomplish  the  desired  results  are 
given  on  pages  54-56.  Appendix  1. 

SANITATION    DIVISION. 

This  division  is  in  charge  of  a  sanitation  or  health  officer  and  its 
duties  consist  in  the  collection  and  disposal  of  garbage,  mosquito 
prevention,  rat  extermination  and  street  cleaning.  The  personnel 
consists  of  28  gold  and  348  silver  employees. 

The  work  of  this  service  is  beyond  criticism  so  far  as  the  thorough- 
ness and  the  quality  of  the  work  is  concerned.  We  know  of  no  city 
in  the  United  States  that  is  as  clean  as  Panama,  nor  where  the  flies 
and  mosquitoes  are  so  scarce.  The  measure  of  this  is  the  markets 
which  are  unscreened  and  in  which  food  is  openly  exposed  for  sale 
and  yet  practically  no  flies  exist.  The  alleys  and  yards  are  as  clean 
as  the  main  streets.  These  same  statements  in  general  apply  to  the 
towns  of  the  zone.  The  city  of  Colon  is  generally  very  clean  for 
a  central  American  town,  but  it  does  not  compare  with  Panama,  nor 
are  its  alleys  as  clean  as  they  ought  to  be. 

The  results  of  this  service  are  shown  in  the  percentages  of  sick,  the 
number  of  malarial  cases  being  negligible  when  the  character  of  the 
surrounding  country  is  considered.  The  work  is  preventive  to  a 
very  large  degree,  the  activities  being  centered  on  eliminating  the. 
breeding  places  of  the  pests  rather  than  on  exterminating  them  after 
birth. 

By  the  terms  of  the  treaty  with  Panama  the  supervision  of  the 
sanitation  of  the  cities  of  Colon  and  Panama  is  under  the  jurisdic- 
tion of  the  health  officer  of  the  Canal  Zone  and  each  city  contributes 
a  certain  amount  toward  its  sanitation.  It  is  found,  however,  that  of 
a  total  of  $158,000  spent  for  prevention  and  sanitation  $123,000  was 
contributed  by  the  United  States;  while  of  the  street  cleaning  and 
garbage  collection  costs,  $81,300  was  contributed  by  the  United  States, 
making  a  total  of  $205,100  contributed  by  the  United  States  out  of 
a  total  cost  of  $324,000. 

While  it  would  be  presumptuous  for  laymen  to  advance  their  opin- 
ion agains  that  of  a  medical  officer  skilled  in  sanitary  matters,  it  is 
the  opinion  of  the  commission  that  a  condition  of  super-sanitation 
exists  as  regards  malaria  and  that  greater  precautions  are  now  be- 
ing taken  than  are  necessary  reasonably  to  protect  the  health  of  the 
inhabitants  of  the  Canal  Zone. 

The  commission  believes  that  a  very  considerable  reduction  can  be 
made  in  the  sanitary  activities  without  materially  affecting  the  health 
and  welfare  of  the  residents  of  the  zone  and  with  a  material  reduc- 
tion in  expenses. 


24  EEPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

Detailed  recommendations  to  accomplish  this  result  are  given  on 
page  56.  Appendix  1. 

QUARANTINE  DIVISION. 

The  quarantine  service  consists  of  the  port  quarantine  officers  and 
quarantine  stations  at  Cristobal  and  Balboa.  There  are  5  gold  and 
16  silver  employees  at  Balboa  and  6  gold  and  15  silver  employees  at 
Cristobal.  The  service  at  each  place  is  the  ordinary  quarantine  serv- 
ice performed  by  the  Public  Health  Service  in  the  United  States. 
The  number  of  ships  examined  by  the  quarantine  officers  during  the 
year  was  approximately  11  plus  per  day.  This  naturally  is  larger 
than  the  number  of  ships  transiting  the  canal,  because  it  includes  all 
ships  touching  at  either  port. 

In  regard  to  the  silver  employees  it  is  believed  that  the  reductions 
of  force  do  not  follow  rapidly  enough  the  reduction  in  activities. 
Xo  specific  recommendation  is  made  as  to  the  size  of  force  to  be 
employed,  but  it  is  believed  that  the  quarantine  division  should  be 
turned  over  to  the  Public  Health  Service  and  operated  under  that 
service  as  is  the  quarantine  work  in  any  port  of  the  United  States. 

ACCOUNTING  DEPARTMENT. 

The  nature  of  the  accounting  system  and  the  general  condition 
observed  in  this  department  have  been  commented  upon  in  an  earlier 
part  of  this  report.  The  recommendations  that  follow  are  discussed 
fully  in  Appendix  No.  2.  In  general  terms,  it  may  be  stated  that 
the  accounting  department  is  not  a  modern  business  organization; 
does  not  reflect  the  real  financial  condition  and  embraces  too  many 
unrelated  and  illogical  functions. 

The  accounting  department  consists  of  three  main  divisions,  desig- 
nated as  the  "  auditor's  office,"  the  "  paymaster's  office,"  and  the 
"  collector's  office."  The  auditor  is  the  head  of  the  accounting  divi- 
sion, but  exercises  only  general  supervision  over  the  paymaster's  and 
collector's  offices. 

The  combined  force  of  the  three  divisions  consists  of  224  gold  and 
9  silver  employees,  with  an  annual  expense  of  approximately  $556,- 
000.  This  does  not  include  the  accounting  department  of  the  "Wash- 
ington office,  with  25  employees  at  an  annual  expense  of  $44,000,  nor 
the  New  York  office,  with  28  employees,  and  an  annual  expense  of 
$55,800.  This  total  outlay  is  out  of  all  proportion  to  the  volume  of 
business  done,  and  even  under  the  present  methods  is  susceptible  to 
substantial  reductions. 

At  present,  the  term  "  auditor  "  is  largely  a  misnomer.  He  neither 
audits  in  the  general  acceptance  of  the  term,  nor  exercises  complete 
control  over  the  accounting  department.  He  has  no  direct  responsi- 
bility for  the  actual  handling  of  funds,  this  function  being  performed 
by  the  collector  and  the  paymaster,  both  of  whom  are,  however,  in  a 
measure  his  subordinates.  He  is  the  financial  arbiter  of  the  Panama 
Railroad,  in  so  far  as  the  availability  of  funds  for  its  uses  is  concerned. 
Similarly,  he  has  practical  direction  of  all  business  operations  of  the 
canal  organization,  and  while  technically  responsible  to  the  governor, 
as  a  matter  of  fact  he  dictates  the  policy  of  every  business  operation, 
fixes  prices,  rates,  service  charges,  allocations  of  labor,  expense  and 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  25 

overhead.  In  brief,  he  performs  every  function  of  an  executive,  but 
without  responsibility  therefor.  •  -. 

The  commission  is  convinced  that  there  should  be  an  entire  re- 
organization of  the  office  of  the  auditor  with  a  redistribution  of  the 
duties  between  the  auditor  and  a  treasurer,  and  that  a  modern  ac- 
counting system  should  be  installed  which  will  permit  of  accurate 
cost  keeping  in  the  several  departments  and  divisions. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  116  and  117,  Appendix  2. 

SUPPLY   DEPARTMENT. 

In  volume  of  business  the  supply  department  ranks  first  of  all 
activities  on  the  Canal  Zone.  All  supplies  of  every  kind  and  nature 
are  provided  by  it,  and  in  addition  thereto  it  directs  the  operations 
of  practically'  eveiw  business  industry  other  than  the  canal  and 
railroad. 

The  commission  believes  that  the  supply  department  should  be 
transferred  in  its  entirety  to  the  Panama  Railroad  Co. ;  that  the 
officer  in  charge  should  immediately  reduce  the  present  large  stocks 
and  thereafter  operate  the  department  on  modern  commercial  lines, 
consolidating  his  activities,  keeping  accurate  records  of  uses  and 
scrutinizing  carefully  requisitions  for  additional  materials.  In  this 
connection  it  is  believed  that  civilians  should  be  encouraged  to  come 
into  the  zone  and  establish  stores  for  supplying  the  ordinary  neces- 
sities of  life,  and  that  the  commissary  should  be  confined  to  the  sale 
of  staples  or  other  articles  not  locally  obtainable. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  117-118,  Appendix  2. 

COMMISSARY  DIVISION. 

The  commissary  division  is  the  most  important  division  of  the 
supply  department  and  operates  the  wholesale  and  retail  stores  of 
the  zone,  and  supplies  the  residents  thereof  and  shipping  with 
practically  every  commodity  entering  into  the  requirements  of  living. 
Operating  under  the  general  policy  that  seems  to  permeate  the  or- 
ganization, its  object  primarily  has  been  to  promote  the  popularity 
of*  the  canal  and  to  provide  the  employees  thereof  with  all  the 
necessities  and  many  of  the  luxuries  of  life  without  profit  to  itself. 
Notwithstanding  the  fact  that  it  has  rendered  a  distinct  service  to 
the  residents  of  the  zone,  it  has,  in  the  words  of  the  governor,  "  as 
many  adverse  critics  as  it  has  customers."  In  the  opinion  of  the  com- 
mission most  of  these  criticisms  are  unfounded  and  arise  from  the 
unreasonable  expectations  of  the  employees  for  superservice. 

This  division  operates  a  large  number  of  manufacturing  plants, 
supplying  various  elements  of  food.  At  present  purchases  are  made 
by  the  use  of  coupon  books,  no  sales  being  made  for  cash.  The 
coupon-book  system  is  a  source  of  great  expense,  and  gives  rise  to 
much  criticism  from  the  residents  of  Panama,  it  being  claimed  that 
large  quantities  of  supplies  are  bought  and  subsequently  resold  in 
the  adjoining  cities  of  Panama  and  Colon. 

The  commission  is  of  the  opinion  that  the  commissary  should  be 
operated  as  a  division  of  the  supply  department  under  an  officer  of 

76736—22 4 


26  EEPORT   OF    SPECIAL   PANAMA   CANAL   COMMISSION. 

the  Panama  Railroad;  that  the  system  of  cash  payments  should  be 
adopted;  and  that  the  stores  and  warehouses  should  be  conducted 
exactly  as  commercial  enterprises,  the  manager  of  each  store  being- 
charged  with  responsibility  for  successful  and  profitable  operation, 
prices  being  fixed  accordingly.  We  are  also  convinced  that  the 
Government  should  take  steps  to  dispose  of  many  of  the  present 
activities  of  this  division,  such  as  the  cattle  industry,  the  hog. farm, 
and  the  dairy  farm. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  119  and  121,  Appendix  2. 

MISCELLANEOUS  ACTIVITIES  OF  THE  SUPPLY  DIVISION. 

There  are  a  number  of  minor  operations  and  activities  of  the 
supply  department  which  came  to  the  attention  of  the  commission 
regarding  which  it  makes  specific  recommendations,  but  which  are 
not  of  sufficient  importance  to  discuss  in  detail  at  this  place. 

Detailed  recommendations  in  regard  thereto  are  set  forth  on  pages 
122  and  123,  Appendix  2. 

RESTAURANTS  AND  HOTELS. 

The  subsistence  division  of  the  supply  department  with  a  personnel 
of  1  superintendent,  1  hotel  inspector,  21  gold  and  217  silver  em- 
ployees, operates  the  restaurants  throughout  the  zone,  of  which  there 
are  11.  In  addition  thereto,  the  Hotel  Tivoli  at  Ancon,  and  the 
Washington  at  Cristobal,  with  17  gold  and  169  silver  employees,  are 
operated  by  this  division. 

I£  is  found  that,  due  to  the  fact  that  no  capital  investment  is  taken 
into  consideration,  and  that  only  nominal  depreciation  charges  have 
been  set  up,  and  no  provision  made  for  replacements,  that  every  meal 
served  at  these  restaurants  and  hotels  is  at  an  actual  loss  to  the 
Government.  It  is  believed  that  this  is  an  unjustifiable  expenditure 
of  public  funds,  and  that  it  should  be  immediately  discontinued. 
The  charges  for  meals  obtaining  in  these  restaurants  are  in  prac- 
tically all  cases  lower  than  that  obtaining  in  the  restaurants  of  the 
United  States  of  much  lower  grade.  The  character  of  service  ren- 
dered and  products  sold  are  excellent  in  every  case. 

Figures  were  not  available  showing  the  actual  total  investment  in 
these  restaurants,  but  it  was  learned  that  the  Hotel  Tivoli  represents 
a  cash  investment  of  over  $400,000,  while  the  Hotel  Washington  rep- 
resents a  capital  investment  of  approximately  $1,000,000.  The  prices 
charged  to  the  traveling  public  for  rooms  at  these  hotels  are  lower 
than  equal  accommodations  can  be  secured  for  elsewhere  or  in  the 
United  States,  and  in  addition  thereto,  Government  employees  and 
members  of  the  Army  and  Navy  are  granted  a  rate  of  approximately 
40  per  cent  less  than  the  public  rate. 

The  commission  believes  that  certain  of  these  restaurants  should  be 
closed;  that  those  that  are  continued  and  the  Hotel  Tivoli  should  be 
operated  on  a  strictly  commercial  basis  with  equal  charges  to  all 
classes  of  patrons  and  at  prices  sufficient  to  insure  profitable  opera- 
tion. The  commission  believes  the  Hotel  Washington  should  be 
leased  for  private  operation. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  122  to  125,  Appendix  2. 


REPORT    OF    SPECIAL    PANAMA    CANAL    COMMISSION.  27 

ELECTRICAL  DIVISION. 

The  power  system  of  The  Panama  Canal  consists  of  one  hydro- 
electric and  one  steam-generating  station  and  six  substations,  all 
interconnected  with  overhead  high-tension  transmission  lines.  The 
total  capital  investment  in  the  generating  and  distributing  facilities 
on  June  30,  1921,  was  $0,361,104.59. 

During  the  fiscal  year  ending  June  30, 1921,  the  combined  generator 
output  of  both  plants  was  71,603,830  kilowatt  hours.  Of  this  total, 
99  per  cent  was  obtained  from  the  hydroelectric  station  and  1  per 
cent  from  the  Miraflores  steam  station. 

The  hydroelectric  installation  and  the  transmission  system 
throughout  are  the  best  equipped  and  the  most  permanent  form  of 
construction.  Under  reasonable  care  and  intelligent  operation,  it 
may  be  depended  upon  to  give  the  highest  character  of  service  pos- 
sible to  obtain,  and  from  the  standpoint  of  continuous  output  is  far 
more  dependable  than  any  steam  equipment  can  ever  be  expected 
to  be. 

During  certain  periods  of  the  year,  for  the  conservation  of  water 
for  lock  purposes,  a  certain  steam  stand-by  generating  capacity  would 
seem  to  be  essential.  The  present  steam  station,  however,  is  of  anti- 
quated design  and  equipment,  and  will,  in  the  natural  course  of 
events,  have  to  be  replaced  within  two  years  at  the  outside. 

At  the  present  time  the  Miraflores  steam  plant  is  kept  in  practi- 
cally continuous  operation.  A  few  boilers  are  kept  .banked  at  a 
slightly  reduced  steam  pressure,  so  that  in  the  event  of  an  emergency 
load  coming  on,  the  generators  can  be  put  in  full  operation  in  the 
minimum  of  time.  The  commission  can  see  no  necessity  for  this 
constant  precaution,  as  it  is  admitted  by  the  canal  authorities  that 
any  interruption  that  might  involve  even  the  entire  power  supply  of 
the  zone  for  a  period  as  long  as  30  minutes  would  result  in  no  ill 
effect,  with  the  one  exception  of  the  possible  flooding  of  one  chamber 
of  the  Miraflores  locks. 

During  the  last  fiscal  year  there  were  only  four  interruptions  in 
the  service  of  the  hydro-electric  station,  the  longest  being  6f  minutes 
and  the  minimum  2-J  minutes. 

With  reference  to  the  possible  flooding  of  one  chamber  of  the  Mira- 
flores locks,  due  to  the  loss  in  control  of  the  elevation  of  the  water 
surface  of  Miraflores  Lake,  it  has  been  ascertained  that  a  cheap  type 
of  gasoline  wrecking  pump  wTould  be  adequate  to  meet  this  emer- 
gency. 

It  was  found  that  30  per  cent  of  the  total  output  of  power  is  con- 
sumed for  lighting  and  cooking,  while  70  per  cent  is  used  for  power 
purposes.  No  charge  is  made  for  power  furnished  for  lighting  and 
cooking  and  there  is,  immediately  apparent,  the  grossest  extrava- 
gance in  the  use  of  current  for  these  purposes. 

Insufficient  consideration  has  been  given  to  the  regulation  of  the 
power  load  throughout  the  zone,  with  the  result  of  an  excessive 
number  of  peaks  in  the  power  demand. 

The  commission  is  of  the  opinion  that  the  auxiliary  steam  generat- 
ing plant  should  be  closed  during  most  of  the  year  and  that  addi- 
tional economies  can  be  effected  by  reductions  in  the  operating  force 
and  by  installing  a  dispatcher  of  electrical  power  to  regulate  the 
load  to  the  various  consumers.     We  are  also  of  the  opinion  that  a 


28  REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

reasonable  charge  should  be  made  for  current  used  by  employees  for 
lighting  and  cooking,  and  that  there  should  be  a  revision  in  the 
charges  for  use  of  telephones. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  125  to  127,  Appendix  2. 

BUREAU  OF  CLUBS  AND  PLAYGROUNDS. 

The  function  of  this  bureau  is  to  provide  recreation  and  entertain- 
ment for  residents  of  the  zone,  including  a  considerable  number  of 
service  men  of  the  Army  and  Navy.  It  maintains  and  operates  10 
clubhouses,  9  playgrounds,  18  tennis  courts,  5  baseball  fields.  2  cricket 
fields,  1  athletic  field,  1  swimming  pool,  10  motion-picture  halls,  and 
5  bathing  beaches. 

The  appraised  value  of  clubhouses,  buildings,  and  playgrounds, 
exclusive  of  equipment  other  than  soda  fountains,  is  $290,444.81. 
No  records  were  available  of  the  value  of  other  equipment. 

The  organization  of  this  bureau  consists  of  68  gold  and  129  silver 
employees,  at  an  annual  pay-roll  cost  of  $183,822. 

A  nominal  fee  is  charged  for  the  use  of  billiard  and  pool  tables, 
bowling  alleys,  etc.,  and  for  certain  of  the  entertainment,  such  as 
moving  pictures. 

The  accounting  methods  are  such  that  it  is  difficult,  if  not  im- 
possible, to  ascertain  the  exact  financial  status  of  the  bureau.  The 
actual  operations  for  the  past  fiscal  year,  which,  however,  is  nothing 
more  than  a  record  of  receipts  and  expenditures,  without  account  of 
capital  invested,  depreciation,  or  provision  for  replacement  of  either 
structures  or  equipment,  would  seem  to  indicate  an  excess  of  ex- 
penditures over  receipts  of  $25,481.  If  to  this  be  added  certain  ap- 
propriations not  appearing  in  the  operating  records,  amounting  to 
$205,000,  we  have  a  net  cost  to  the  Government  last  year  for  account 
of  playgrounds  and  clubhouses  of  $230,000,  with  interest  on  approxi- 
mately $300,000  of  invested  capital  yet  to  be  added. 

Notwithstanding  the  fact  that  80  per  cent  of  the  business  done 
by  the  clubhouses  is  in  the  afternoon  and  evening,  the  clubs  are 
operated  at  full  complement  from  7  a.  m.  until  midnight. 

The  commission  is  convinced  that  the  services  of  this  bureau  may 
properly  be  somewhat  curtailed,  thereby  effecting  considerable  econ- 
omy in  cost  of  operation  and  that  the  entire  bureau  should  be  put 
on  a  self-sustaining  basis  with  charges  for  articles  and  entertain- 
ment furnished  and  for  other  privileges  sufficient  to  insure  this 
result. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  page  127,  Appendix  2. 

RECORD  BUREAU. 

This  bureau  has  the  function  of  sorting  and  filing  correspondence 
passing  through  the  administration  headquarters,  except  that  of 
the  accounting  department,  which  is  handled  by  that  department 
itself.  It  consists  of  32  gold  and  27  silver  employees,  with  an  annual 
pay  roll  of  $35,579.92.  The  bureau  also  indexes  and  files  general 
records,  maps,  drawings,  etc.,  in  charge  of  mail,  supervises  the  mes- 
senger service  and  the  Canal  Zone  free  circulating  library  system. 


REPORT   OF   SPECIAL  PANAMA   CANAL   COMMISSION.  29 

Although  it  was  urged  that  this  concentration  of  files  was  desir- 
able and  necessary,  it  is  believed  that  with  the  exception  of  maps, 
drawings,  and  similar  construction  data,  the  present  system  leads 
only  to  duplication  of  work  and  unnecessary  expense,  and  should  be 
discontinued,  the  functions  being  distributed  among  the  several 
divisions. 

Detailed  recommendations  are  made  on  page  128.  Appendix  2. 

PERSONNEL  BUREAU. 

This  bureau  keeps  records  of  transfers,  promotions,  reductions, 
and  terminations,  applications  for  living  quarters,  leaves  of  absence, 
issues  orders  for  transportation,  and  performs  other  similar  functions 
for  the  entire  gold  personnel  of  the  canal,  and  for  silver  employees 
receiving  compensation  in  excess  of  $80  per  month,  or  $0.40  per  hour. 

The  organization  consists  of  13  gold  emplovees,  at  an  annual  cost 
of  $33,372. 

This  bureau  apparently  is  performing  at  additional  cost  duties 
properly  belonging  to  the  various  departments  and  divisions,  and 
in  the  opinion  of  the  commission  should  be  discontinued  and  its  func- 
tions distributed  to  the  several  divisions. 

Detailed  recommendations  are  found  on  page  128,  Appendix  2. 

PROPERTY  AND  REQUISITION  BUREAU. 

This  bureau  has  charge  of  the  preparation  of  requisitions  and 
property  invoices  covering  transfers  of  property  and  equipment  from 
one  department  to  another,  inventories  property,  and  segregates  the 
charges  therefor.  Under  the  present  canal  organization  it. performs 
a  necessary  and  useful  function.  The  organization  consists  of  14 
gold  employees,  at  an  annual  cost  of  $31,908.  Should  the  recom- 
mendation for  the  transfer  of  the  supply  department  to  the  juris- 
diction of  the  Panama  Railroad  be  approved,  this  bureau  will  auto- 
matically pass  out  of  existence.  In  the  event  that  said  recommenda- 
tion is  not  approved,  it  is  believed  that  the  personnel  of  the  bureau 
is  susceptible  of  a  reduction  of  50  per  cent  without  loss  of  effective- 
ness or  efficiency  (p.  128,  Appendix  2). 

BUREAU  OF  STATISTICS. 

This  bureau  is  the  general  publicity  and  vital  statistical  bureau  of 
the  canal.  It  prepares  statements  and  reports  covering  every  ac- 
tivity on  the  zone,  compiles  annual  reports  for  the  departments, 
prepares  advertising  matter,  including  articles  for  magazines  and 
newspaper  press  of  the  world,  and  is  in  fact  the  work  of  highly 
trained  specialists.  The  organization  consists  of  eight  gold  em- 
ployees, at  an  annual  cost  of  $20,628.  None  of  these  employees  ap- 
pear to  be  overpaid,  and  this  organization  is  performing  a  service  of 
great  value  to  the  Government. 

Should  the  recommendation  that  the  publication  of  the  Canal  Eec- 
ord  be  discontinued  be  approved,  it  is  possible  that  the  services  of 
one  man  might  be  dispensed  with  (p.  128,  Appendix  2). 

WASHINGTON  OFFICE. 

This  office  was  conducted  during  the  fiscal  year  ending  June  30, 
1921,  at  a  total  cost  of  $319,987.     The  organization  consists  of  a  pur- 


30  REPORT    OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

chasing  department,  an  accounting  department,  and  an  administra- 
tive department  consisting  of  a  total  of  132  employees. 

It  is  recognized  that  in  the  earlier  days  when  much  material  was 
being  forwarded  for  construction  purposes  the  functions  of  the 
Washington  office  were  highly  important.  It  is  believed,  however, 
that  in  view  of  the  small  amount  of  construction  work  contemplated, 
and  of  other  recommendations  made  in  this  report,  such  as  a  revision 
of  the  accounting  department  and  the  transfer  of  the  purchasing 
department  to  New  York,  there  will  be  little  occasion  for  the  main- 
tenance of  so  large  a  force  in  the  Washington  office. 

It  seems  to  the  commission  that  this  office  should  be  reduced  to  that 
of  a  sort  of  liaison  headquarters  between  the  canal  and  the  Secretary 
of  War,  and  that  all  other  functions  should  be  transferred  or  dis- 
continued. 

Detailed  recommendations  appear  on  page  129,  Appendix  2. 

DIVISION  OF  LOCK  OPERATION. 

The  very  large  number  of  employees  and  the  great  amount  of  the 
annual  pay  roll  led  to  a  careful  consideration  of  the  lock  forces  to 
see  if  they  could  be  reduced.  At  present  they  are  divided  into  two 
shifts  of  eight  hours  each,  and  the  first  obvious  suggestion  was  to  see 
if  it  was  practicable  to  operate  the  locks  and  properly  accommodate 
traffic  on  one  8-hour  shift,  the  crews  working  either  continuously 
or  with  a  swing  of,  say.  three  hours  interposed  at  sometime  during  the 
8-hour  period.  One  shift,  if  practicable,  might  save  in  pay  at 
least  $200,000  a  year,  although  the  estimate  of  the  canal  authorities 
was  about  $101,000. 

This  question  was  discussed  at  length  with  the  governor,  with 
the  superintendent  of  the  marine  division,  and  finally  with  the  acting 
engineer  of  maintenance  and  operation.  These  officials,  and  also  the 
captain  of  the  port  of  Balboa,  accumulated  much  data  bearing  on  the 
matter,  and  the  consensus  of  opinion,  in  which  the  commission  agrees, 
was  that  it  is  impracticable  to  operate  the  locks  with  one  8-hour  shift, 
even  with  a  swing  or  split,  unless  grave  chances  be  taken  of  serious 
delay  to  traffic  through  the  canal  if  more  than  seven  ships  bound  north 
and  eight  ships  bound  south  present  themselves  for  passage  on  any 
one  clay,  and  such  delay  to  traffic  would  ultimately  probably  result  in 
a  serious  loss  of  tolls  to  the  canal. 

A  new  system  of  dispatching,  however,  which  has  been  under  con- 
sideration for  some  time  by  the  canal  authorities  is  shortly  to  be  put 
into  operation,  and  it  is  believed  will  make  possible  considerable 
economies. 

The  lock  force  is  somewhat  overstaffed,  and  after  a  careful  study  it 
is  believed  that  considerable  reduction  can  be  made  with  no  loss  of 
efficiency. 

Detailed  recommendations  appear  on  page  112,  Appendix  3. 

DREDGING  DIVISION. 

It  was  found  that  generally  all  of  the  dredging  division  equipment 
in  actual  use  is  in  good  condition  and  well  maintained,  and  this  would 
apply  to  that  held  in  reserve.  The  excellent  organization  of  the 
dredging  division  and  the  need  of  keeping  sufficient  equipment  ready 
for  immediate  use  is  instanced  by  the  slide  at  the  east  barge  repair 


REPORT   OF   SPECIAL  PANAMA   CANAL   COMMISSION.  31 

station  that  occurred  about  3  p.  m.,  July  14.  This  slide  was  reported 
to  the  superintendent  of  the  dredging  division  at  about  3.45  p.  m., 
and  at  5.15  p.  m.-the  large  dipper  Paraiso  was  actually  working  on 
its  removal  from  canal  prism,  and  the  work  of  removal  was  so  effi- 
ciently carried  on  that  the  passage  of  the  battleships  Oklahoma, 
Ae  rati  a,  and  Wisconsin,  on  July  IT,  was  not  delayed.  Except  for 
the  suction  dredge  Culebra,  which  should  be  transferred  to  the  Engi- 
neer Department,  United  States  Army,  and  dredge  No.  83,  which 
should  be  rented,  it  is  not  believed  that  the  equipment  is  in  excess  of 
reasonable  needs. 

Considerable  study  is  needed  in  the  matter  of  salaries  of  employees 
of  this  division,  for  some  are  out  of  coordination  with  wages  for 
similar  employment  in  the  United  States. 

Detailed  recommendations  are  made  on  pages  112-113,  Appendix  3. 

MARINE  DIVISION. 

The  functions  of  the  marine  division  consist  of  the  maritime  ad- 
ministration of  the  ports  of  Cristobal  and  Balboa,  the  control  of  the 
salvage  section,  of  the  board  of  local  inspectors  and  steam  vessels,  of 
the  board  of  admeasurement,  which  deals  with  the  measurement  of 
ships  using  the  canal  to  determine  the  amount  of  canal  tolls  to  be  paid 
by  them,  the  supervision  of  harbor  craft  owned  by  the  canal,  and  the 
control  of  the  lighthouse  establishment. 

The  scheme  of  organization  appears  good,  the  officers  in  control 
from  a  nautical  standpoint  are  most  competent,  and,  generally  speak- 
ing, the  personnel  efficient.  The  floating  equipment  is  in  good  con- 
dition and  is  well  manned.  However,  some  reductions  in  the  per- 
sonnel employed  are  practicable  at  the  present  time  because  of  the 
diminished  use  of  the  floating  equipment  incident  to  the  falling  off 
in  shipping  activities. 

A  thorough  study  made  of  the  operation  of  the  floating  equipment 
resulted  in  the  conclusion  that  certain  of  the  equipment  should  be 
disposed  of.  The  commission  is  of  the  opinion  that  the  ratings  of 
the  tug  officers  should  be  revised  and  certain  other  economies  effected 
in  operating  personnel.  We  also  believe  that  a  reasonable  pilotage 
fee  should  be  charged  vessels  transiting  the  canal,  and  that  the  pilot- 
ing should  not  be  turned  over  to  the  proposed  pilots'  association. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  113,  115.  Appendix  3. 

MECHANICAL  DIVISION. 

The  mechanical  division  operates  the  Balboa  shops  and  dry  dock, 
and  the  Cristobal  shops  and  dry  dock.  It  does  commercial  and  naval 
work,  performs  all  the  repairs  for  the  Panama  Railroad,  and  much 
for  the  steamship  company.  It  also  performs  mechanical  work  for 
practically  all  the  divisions  of  the  canal,  and  manufactures  material 
which  is  turned  into  stores.  The  total  investment  in  these  plants 
and  dry  docks  is  $8,364,000.  The  pay  roll  for  June  showed  6T6  gold 
employees  and  1,093  silver  employees,  with  a  monthly  pay  roll  of 
$220,439. 

For  the  fiscal  year  ending  June  30,  1920,  the  gross  revenue  pro- 
duced by  the  mechanical  division  is  reported  at  $7,552,106.  The 
volume  of  business  for  the  past  fiscal  year  has  not  yet  been  reported, 


32  REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION". 

but  is  less  than  the  previous  3'ear.  Operating  statements  submitted 
for  the  nine  months  ending  April  1,  1921,  show  a  total  deficit  for  the 
division's  operations  of  $56,138,  without  any  allowance  for  interest 
on  the  capital  investment  of  $8,354,000.  If  usual  fixed  charges  at 
5  per  cent  on  the  investment  are  added,  it  would  be  necessary  to 
increase  the  above  deficit  by  the  amount  of  $417,000. 

As  a  commercial  operating  proposition,  therefore,  the  mechanical 
division  is  a  serious  burden  to  the  Government  and  presents  for  deter- 
mination a  question  of  policj^. 

The  commission  regards  the  continued  operation  of  these  shops  and 
dry  docks  of  the  mechanical  division  as  auxiliary  naval  activities  to 
be  unjustified  by  anything  that  we  have  found  in  legislation.  Every- 
thing that  we  have  found  appears  to  regard  them  as  commercial 
auxiliaries  to  the  canal.  We  are  of  the  opinion  that  the  shops  and 
dry  docks  should  be  operated  entirely  as  commercial  agencies  until 
Congress  shall  otherwise  indicate  and  appropriate  therefor,  and  that 
certain  of  the  shops  should  be  closed  and  large  reductions  made  in 
operating  personnel. 

Detailed  recommendations  appear  on  pages  115.  117,  Appendix  3. 

STEAMBOAT-INSPECTION  SERVICE. 

It  was  found  that  there  has  been  considerable  criticism  by  masters, 
mates,  pilots,  and  marine  engineers  as  to  the  form  of  organization 
of  the  board  of  local  inspectors  in  the  steamboat-inspection  service. 
As  at  present  constituted,  the  board  consists  of  the  captain  of  the 
port  of  Cristobal,  the  captain  of  the  port  at  Balboa,  the  naval  officer 
detailed  as  supervisor  of  harbor  craft,  and  the  inspector  of  hulls  and 
boilers. 

It  will  be  observed  that  under  this  organization,  the  captain  of 
the  port  of  either  Balboa  or  Cristobal  might  be  called  upon,  as  has 
actually  been  the  fact,  to  sit  as  a  member  of  the  board  of  inspectors 
in  a  case  in  which  an  accident  has  occurred  to  a  vessel  that  has  been 
operating  under  orders  from  the  same  person  acting  as  captain  of 
the  port. 

It  is  believed  that  this  steamboat-inspection  service  should  be 
turned  over  to  the  Department  of  Commerce.  In  event  there  is  legal 
difficulty  involved  in  accomplishing  this  transfer,  or  pending  the 
transfer,  if  approved,  certain  changes  should  be  made  in  the  present 
organization. 

Detailed  recommendations  appear  on  pages  117,  118.  Appendix  3. 

METEOROLOGICAL  AND  HYDROGRAPHIC  SECTION. 

The  meteorological  and  hydrographic  section  has  charge  of  the 
installation  and  maintenance  of  all  meteorological,  hydrographic, 
and  seismological  equipment;  the  compiling  and  summation  of  obser- 
vational and  automatic  data  relative  to  the  same;  and  the  prepara- 
tion and  furnishing  of  reports  based  on  such  data. 

It  is  believed  that  under  present  conditions  considerable  of  the 
work  now  being  carried  on  by  this  section  can  be  discontinued  with- 
out inconvenience  or  loss  to  the  Government,  and  the  personnel  con- 
siderably reduced. 

Detailed  recommendations  appear  on  pages  118,  119,  Appendix  3. 


REPORT    OF    SPECIAL   PANAMA   CANAL   COMMISSION.  33 

PANAMA  RAILROAD. 

The  Panama  Railroad  was  built  and  operated  for  a  period  of  50 
}7ears  as  a  successful  commercial  enterprise,  earning  dividends  that 
ranged  from  4  per  cent  to  26  per  cent  per  annum.  In  the  last  five 
years  before  the  United  States  acquired  the  property  the  railroad 
handled  an  average  of  375,000  tons  of  freight  per  annum,  compared 
with  250,000  tons  handled  in  1920.  The  net  earnings  of  the  railroad 
and  steamship  company  during  this  period  ran  from  $750,000  to 
$1,000,000  per  annum.  When  the  railroad  was  relocated  and  rebuilt 
by  the  Isthmian  Canal  Commission,  first-class  modern  standards  of 
railroad  construction  were  used,  resulting  in  a  complete  and  first- 
class  railroad  not  exceeded  anywhere  in  the  Tropics.  The  old  track 
gauge  of  5  feet  was  maintained  in  the  relocation,  ample  depth  of 
first-class  gravel  rballast  is  found  throughout,  and  the  entire  main 
line  is  protected  by  automatic,  three-position  signals.  In  a  word, 
every  detail  is  of  the  best.  Mention  is  made  of  the  previous  earnings 
and  history  of  the  property  for  comparative  purposes  with  its  un- 
fortunate operating  and  financial  condition  to-day.  The  physical 
condition  of  the  property  is  here  mentioned  to  show  that  the  railroad 
to-day  should  be  operated  and  maintained  at  a  minimum  cost. 

While  the  railroad  was  built  and  operated  for  purely  commercial 
purposes  prior  to  our  treaty  with  the  Republic  of  Panama,  it  has, 
since  the  construction  of  the  canal  and  its  opening  to  commerce  in 
1915,  become  an  important  adjunct  to  the  canal  itself.  The  future 
policy  of  the  railroad  must,  therefore,  be  controlled  to  some  extent 
by  the  canal  policy  and  military  necessities. 

It  has  been  found,  however,  that  to-day  the  railroad  and  its  out- 
side operations  are  carrying  a  larger  personnel  than  would  be  neces- 
sary for  purely  commercial  operation  of  the  railroad.  It  now  has 
approximately  twice  as  many  employees  as  are  necessary  to  efficient 
operation. 

The  Panama  Railroad  Co.  is  an  incorporated  company,  and  al- 
though the  Government  is  the  sole  stockholder,  we  do  not  believe 
that  its  treasury  should,  in  the  future,  be  used  for  other  than  purely 
railroad  purposes.  Considering  the  mileage  involved,  the  capital 
account  of  the  railroad  company  seems  high,  but  in  view  of  the  cost 
of  relocation  and  rebuilding  in  accordance  with  the  very  best  stand- 
ards, the  capitalization  is  actually  not  excessive,  and  by  reason  of 
the  excellent  construction,  future  maintenance  expenses  will  be  com- 
paratively light. 

The  operating  ratio  of  expenses  to  revenues  for  1919  was  91.4  per 
cent;  for  1920,  99.1  per  cent  for  nine  months  ending  March  31,  1921, 
109  per  cent ;  and  estimated  for  the  year  ending  June  30, 1921, 125  per 
cent.  The  ever  increasing  operating  ratio  ending  in  the  excessive 
ratio  now'existing  shows  that  no  effort  has  been  made  to  reduce  the 
operating  expenses  to  conform  to  reduced  traffic. 

The  company  enjoys  high  freight  tariff  rates  which  have  recently 
been  increased.  The  average  receipts  per  ton-mile  are  now  $0,096; 
the  average  passenger  receipts  per  mile  $0,033.  These  are  reflected 
in  the  gross  earnings,  which  amount  to  $42,000  per  mile.  With 
proper  operation  and  management,  this  income  is  ample  to  return  a 
reasonable  profit  on  net  operation.     Highly  paid  gold  employees  are 


34  REPORT    OF   SPECIAL   PANAMA   CANAL    COMMISSION. 

being  used  in  many  positions  which  could  be  filled  equally  well  by 
native  labor  at  much  lower  rates  of  pay,  and  in  all  departments  there 
is  a  surplus  of  personnel. 

The  power  and  equipment  is  being  maintained  by  the  mechanical 
division  of  the  canal,  and  the  railroad  company  has  no  immediate 
jurisdiction  or  responsibility  therefor.  Even  the  roundhouses  and 
engine  crews  are  under  the  mechanical  division  jurisdiction.  The 
high  cost  of  maintenance  of  equipment  is  probably  due  in  part  to 
this  cause. 

The  freight  train  service  is  run  in  an  uneconomical  manner,  and 
not  in  accordance  with  the  principles  of  American  railroad  oper- 
ation. Some  crews  make  no  more  than  50  miles  per  day  and  accom- 
plish it  in  from  three  to  four  hours.  These  crews  are  paid  on  a 
monthly  basis  without  regard  to  service  performed  or  mileage  made. 

There  is  no  traffic  department  such  as  usually  exists  on  even  the 
smallest  railroads  all  over  the  world.  Bates  are  made  by  the  auditor 
of  The  Panama  Canal,  and  claims  for  loss  and  damage  are  settled 
by  him.  There  is  no  concerted  or  well-directed  effort  to  solicit  and 
build  up  the  traffic  that  the  railroad  now  needs. 

Under  its  original  concessions  the  company  owns  valuable  real 
estate,  some  of  which  is  in  the  business  centers  of  Panama  and  Colon. 
This  real  estate  is  leased  at  nominal  rentals  only,  and  the  income 
therefrom  is  susceptible  of  great  increase  when  the  old  leases  mature 
within  the  next  few  years.  The  real  estate  is  carried  as  an  asset 
in  the  balance  sheet  at  but  slightly  over  $1,000,000,  whereas  its 
present  estimated  value  is  $13,000,000.  -  We  are  confident  that  the 
property  can  be  made  to  realize  a  fair  return  on  a  new  valuation 
approximating  this  figure.  It  is  believed  that  some  of  the  property 
not  necessary  for  railroad  purposes  in  Panama  City  should  be  sold, 
thereby  obtaining  much  naaded  funds. 

The  harbor  terminals  which  have  previously  been  revenue  pro- 
ducers are  showing  a  deficit  for  the  year  1921.  Economies  can  be 
effected,  however,  sufficient  to  wipe  out  this  deficit  in  future  years 
of  operation. 

The  coaling  operations  represent  a  capitalization  of  about  $7,- 
000,000,  of  which  about  $1,000,000  only  is  carried  in  the  capital 
account  of  the  Panama  Eailroad  Co.  The  coaling  plants  have  been 
revenue  producers,  and  will  probably  show  a  profit  for  1921.  The 
plants  are  heavily  manned,  however,  and  are  run  in  an  expensive 
manner.  If  the  force  is  not  materially  reduced  and  placed  upon  a 
one  eight-hour  per  day  shift,  it  is  feared  that  deficits  will  shortly 
occur.  At  the  time  of  writing  there  were  about  225,000  tons  of  coal 
on  hand,  equivalent  to  seven  months'  supply  at  present  rate  of  use. 
If  the  one  collier  which  is  at  present  in  operation  between  Norfolk 
and  the  Isthmus  were  laid  up  until  the  supply  of  coal  is  c*ut  in  half 
better  results  would  be  reflected.  The  coal  operations  are  purely 
commercial,  and  if  they  can  not  be  made  to  meet  operating  expenses 
and  fixed  charges  the}'  should  be  leased  or  sold. 

The  commission  is  of  the  opinion  that  the  Panama  Railroad  should 
be  thoroughly  reorganized  to  conform  to  standard  railroad  practices 
in  the  United  States  and  should  henceforth  confine  its  operations  to 
recognized  railroad  functions.  A  nmnber  of  business  men  of  wide 
experience  should  be  placed  on  the  board  of  directors  and  a  competent 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  35 

general  manager  should  be  employed.  Its  force  should  be  largely 
reduced,  and.  in  many  positions  colored  labor  should  replace  white. 
The  maintenance  of  equipment,  at  present  performed  by  the  me- 
chanical division,  should  be  turned  over  to  the  railroad,  and  all  equip- 
ment not  actually  needed  should  be  sold  or  scrapped.  All  outside 
operations  such  as  the  harbor  terminals  and  coaling  plants  should 
be  operated  so  as  to  insure  an  adequate  return  on  the  investment. 

The  commission  feels  that  the  present  method  of  railroad  opera- 
tion is  one  of  the  greatest  sources  of  loss  to  the  Government,  and 
estimates  that  if  the  new  methods  recommended  are  put  into  effect 
a  saving  of  about  $1,120,000  per  annum  can  be  made. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  81-87,  Appendix  1. 

PANAMA  RAILROAD  STEAMSHIP  LINE. 

The  Panama  Steamship  Co.'s  operations  started  in  1893,  and  may 
be  regarded  as  the  marine  department  of  the  Panama  Railroad. 
Until  the  purchase  of  the  Panama  Railroad  by  the  United  States  Gov- 
ernment the  operations  of  the  steamship  company  were  financially 
successful  and  served  an  important  commercial  trade  between  New 
York,  Colon,  and  Pacific  coast  ports.  During  the  period  of  con- 
struction of  the  canal  the  commercial  operations  were  subordinated, 
of  course,  to  the  necessities  of  the  Government,  the  line  giving  pref- 
erence to  the  handling  of  construction  materials  and  American  em- 
ployees going  to  or  from  the  Canal  Zone. 

For  the  purposes  of  analysis  the  operations  of  the  company  from 
1900  to  1921  may  be  divided  into  three  periods,  to  wit :  The  five  years 
prior  to  the  beginning  of  the  construction  of  The  Panama  Canal,  in 
which  the  steamship  company  was  engaged  solely  in  commercial 
business;  second,  the  period  of  construction  of  The  Panama  Canal; 
and  third,  the  five  years  since  the  opening  of  the  canal. 

During  the  last  period  above-mentioned  it  may  be  assumed  that 
the  steamship  line  had  returned  to  commercial  operations,  although 
it  is  believed  that  the  handling  of  Panama  Canal  employees  has  been 
given  too  much  weight  in  the  policy  of  the  operation  of  the  steam- 
ships. During  this  period  also,  the  Panama  Co.,  as  well  as  all  other 
steamship  companies,  profited  by  the  abnormal  conditions  due  to  the 
war.  Similarly  in  the  past  year  the  Panama  Steamship  Co.  has  met 
the  same  adverse  conditions  experienced  throughout  the  marine 
world.  It  would  have  experienced  no  difficulty  in  meeting  these 
adverse  conditions  if  the  surplus  they  had  previously  earned  was 
intact  and  cash  resources  were  available. 

It  is  believed  that  the  Panama  Steamship  line,  like  other  steam- 
ship companies,  must  meet  the  new  conditions  that  point  to  low 
freight  rates  and  comparatively  high  operating  expenses  for  at  least 
two  years  to  come.  Some  economies  will  be  effected  through  the  re- 
adjustment of  the  pay  of  all  classes  of  steamship  employees,  and  in 
decreased  cost  of  fuel,  supplies,  and  administration  expenses.  Not- 
withstanding, wages  will  be  higher  than  in  the  prewar  period,  and 
all  of  the  economies  will  not  wipe  out  the  operating  deficit  for  1922. 

The  company  at  present  is  experiencing  difficulty  in  obtaining  pier 
space  at  New  York,  and  is  now  paying  large  rentals  for  such  space 


36  REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

as  it  is  using.  If  relief  from  the  present  pier  situation  can  not  be 
secured  through  the  influence  of  the  War  Department,  it  alone  is 
sufficient  reason  for  the  abandonment  ■  of  the  steamship  company's 
operations  as  hereafter  recommended. 

So  far  as  the  handling  of  freight  on  the  piers,  crews,  and  straight 
seamanship  expenses  are  concerned,  we  are  of  the  opinion  that  the 
company  is  being  handled  as  efficiently  and  economically  as  labor 
conditions  will  permit. 

This  company  is  constantly  called  upon  to  carry  official  delegations 
to  and  from  the  Canal  Zone  and  West  Indian  points,  and  to  trans- 
port employees  of  the  Government  at  less  than  actual  cost  of  trans- 
portation. 

At  the  present  time,  the  company  is  facing  an  operating  deficit  for 
the  year  ending  June  30,  1921,  of  about  $700,000,  and  with  the  fixed 
charges  at  4  per  cent  the  income  deficit  becomes  $887,000.  The 
management  forecasts  that  for  the  year  1922  it  will  be  able  approxi- 
mately to  break  even  and  that  for  1923  the  operating  revenue  will  be 
between  $350,000  and  $400,000.  With  this  forecast  we  can  not  agree, 
and  are  of  the  opinion  that  the  year  1922  will  show  an  operating 
deficit  of  possibly  $350,000  and  that  if  all  suggested  economies  and  re- 
ductions are  made  in  the  year  1923  it  is  possible  that  the  operating 
revenue  will  equal  the  expenses. 

The  above  forecasts  are  all  predicted  upon  increasing  the  tonnage 
carried  from  commercial  sources.  From  a  broad  economic  point  of 
view,  it  is  manifest  that  it  is  not  to  the  best  public  interest  to  have  a 
Government  owned  and  operated  steamship  line  in  competition  with 
privately  owned  American  steamship  lines.  The  commission  is  con- 
vinced that,  from  a  point  of  view  of  governmental  policy,  as  well  as 
from  a  financial  and  commercial  standpoint,  the  operation  of  the 
Panama  Railroad  Steamship  Line  should  be  discontinued.  The  com- 
mission realizes  that  there  are  reasons  advanced  for  maintaining  this 
line  which  have  had  a  predominating  influence  up  to  the  present  time. 
Some  of  these  reasons  are  the  prompt  and  regular  transportation  of 
supplies  to  the  Isthmus,  the  transportation  of  canal  employees  when 
on  leave,  and  to  a  certain  extent  the  stabilization  of  rates  charged 
to  American  customers  between  the  United  States  and  Latin-Ameri- 
can countries.  The  commission  feels  that  these  reasons  no  longer 
exist  since  ample  private  commercial  facilities  now  operate  between 
the  United  States  and  the  Isthmus,  and  because  the  Shipping  Board 
is  the  agency  through  which  the  United  States  handles  its  shipping 
matters  and  rates.  In  case  it  is  decided  to  continue  the  line,  the 
commission  is  certain  that  this  decision  must  be  made  in  the  face  of 
an  almost  certain  continued  financial  loss.  This  decision  must  also 
contemplate  thel  continuance  of  the  steamship  line  in  commercial 
business,  without  which  it  can  not  possibly  survive. 

With  reference  to  the  alleged  stabilizing  of  rates  through  the 
operation  of  the  Panama  Railroad  Steamship  Line,  it  is  believed  that 
in  this,  as  in  other  commercial  affairs,  the  inexorable  law  of  supply 
and  demand  will  apply,  and  if  excessive  freight  rates  are  charged  by 
existing  steamship  lines  for  service  to  and  from  South  American 
ports,  fresh  competition  will  be  introduced  and  rates  quickly  made 
reasonable. 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  37 

After  giving  careful  consideration  to  the  questions  involved  the 
commission  is  convinced  that  the  steamship  line  of  the  Panama  rail- 
road should  be  liquidated.  Its  fleet  is  obsolete,  its  operations  are 
being  conducted  at  great  loss,  and  it  can  hope  to  survive  only  by 
aggressively  and  success  fully  competing  with  privately  owned  ship- 
ping. In  the  event  the  administration  elects  to  continue  the  steam- 
ship line,  certain  large  economies  are  possible  which  it  is  believed  will 
cut  the  present  operating  deficit  in  half  for  the  next  year. 

Detailed  recommendations  to  accomplish  these  results  are  set  forth 
on  pages  88,  89,  Appendix  4. 

The  foregoing  recommendations  have  been  made  by  the  commis- 
sion after  thorough  study  and  long  deliberation.  We  approached 
the  investigation  with  the  deliberate  intention  of  considering  each 
activity  as  though  we  were  going  to  be  charged  personally  with  the 
conduct  of  that  division  under  the  recommendations  that  we  would, 
make,  and  with  the  expressed  decision  that  under  no  circumstances 
would  we  recommend  a  change  simply  in  the  spirit  of  criticism  or 
with  the  idea  that  we  had  been  sent  to  Panama  to  effect  changes. 

Our  fixed  opinion  is  that  the  canal  administration  has  never  been 
given  a  definite  mission  or  what  might  be  called  a  target  at  which 
to  aim.  The  conditions  that  we  found  are  the  results  of  the  lack  of 
a  definite  policy  or  target  and  the  outgrowth  of  many  decisions  taken 
more  or  less  without  consideration  of  their  effect  upon  future  policy. 
Xo  definite  policy  of  operation  was  ever  set  up  independently  of 
the  policy  of  construction,  and  therefore  construction  policies  still 
obtain  in  the  period  of  operation.  In  other  cases,  it  would  appear 
that  decisions  affecting  the  proper  operation  of  the  canal  had  been 
subordinated  to  greater  matters  during  the  war,  while  in  others  it 
appears  as  though  the  easiest  solution  had  been  taken  in  order  to 
settle  the  matter  for  the  moment. 

If  the  recommendations  of  the  commission  are  adopted  it  is  be- 
lieved that  the  total  annual  saving  to  the  Government  will  be  about 
$5,000,000.  This  saving  does  not  all  come  from  a  reduction  in  oper- 
ating cost,  but  is  made  up  of  a  saving  from  that  source  and  an  in- 
come derived  from  repayment  to  the  Government  for  certain  services 
that  have  heretofore  been  gratuitous.  The  commission  firmly  be- 
lieves that  its  recommendations  can  be  put  into  effect  not  only  with- 
out injuring  the  service  of  the  canal  in  any  way  but  with  an  actual 
improvement  in  the  service,  and  that  the  resulting  cost  of  operation 
will  hereafter  increase  at  a  slower  rate  than  the  rate  of  increase  in 
the  number  of  ships  transiting  the  canal.  It  is  also  believed  that  if 
the  recommendations  are  adopted  the  returns  to  the  Government  will 
increase  year  b}^  year  and  that  within  a  period  of  10  or  15  years  the 
canal  will  return  a  fair  income  on  the  investment  of  the  Federal 
Government  therein. 

Respectfully  submitted. 

Wm.  D.  Connor. 
Alfred  Brooks  Fry, 
H.  P.  Wilson, 
F.  A.  Molitor. 


Letter  from  the  Governor  of  the  Panama  Canal  to  the  Secretary 
of  War,  making  preliminary  comments  upon  the  Report  of 
the  Special  Panama  Canal  Commission. 


At  Sea.  on  SS.  Santa    Elisa, 

September  17,  1921. 
The  honorable,  the  Secretary  of  War, 

Washington,  D.  C. 

Sir  :  In  this,  1113^  first  comment  on  the  report  of  the  special  com- 
mission, I  shall  attempt  brevity,  as  in  the  main  report  of  the  com- 
mission, supplementing  it  later,  if  desired,  in  the  manner  of  their 
appendices,  with  each  comment  in  more  expanded  form. 

By  way  of  preface,  I  desire  to  record  the  fact  that  the  visit  of  the 
commission  has  already  been  of  great  benefit  to  the  administration, 
and  there  are  recommendations  in  this  report  not  brought  to  my 
attention  during  their  visit  which  also  will  be  of  benefit;  but  there 
are  some  of  their  recommendations  in  which  I  can  not  concur.  In 
the  preparation  of  this  memorandum  I  can  not  cover  the  entire  field, 
but  hope  to  touch  on  most  of  their  recommendations  which  are  of 
major  importance. 

COST  AND  VALUE. 

There  are  certain  features  of  the  canal,  aside  from  itself,  that 
have  been  largely  designed  as  military  and  naval  features.  The 
most  important  of  these  are  the  big  shops  and  dry  dock  at  Balboa, 
the  two  coaling  plants,  the  cattle  pastures  and  abattoir,  and  to  some 
extent  the  oil  supplies,  stores,  and  commissaries.  All  of  these  are 
more  extensive  than  they  would  be  if  the  canal  were  not  a  Govern- 
ment owned  and  operated  facility.  It  is  entirely  a  misapprehension 
to  assume  that  these  facilities  were  constructed  without  careful  con- 
sideration by  responsible  committees  of  Congress  under  advice  of 
military  and  naval  authorities  aside  from  canal  officials,  or  to 
assume  that  their  operating  charges  were  fixed  in  ignorance  of  the 
ordinary  accounting  practices.  As  a  matter  of  fact.  Governor 
Goethals  fixed  the  principle  on  which  mechanical  division  account- 
ing was  established,  on  the  sound  theory  that  amortization  and  de- 
preciation charges  on  all  the  plant  would  deprive  the  shops  of  com- 
mercial business  and  throw  a  heavier  charge  on  Government  for  the 
maintenance  of  a  plant  which  fulfils  three  functions,  as  follows : 

The  necessary  function  of  maintenance  of  canal  and  railroad 
equipment : 

The  highly  desirable  function  of  a  repair  yard  for  commercial 
ships ; 

The  reserve  function  of  a  military  and  naval  base. 

The  same  principles  which  directed  this  decision  apply  to  the 
others  and  parallel  cases,  and  it  may  be  stated  that  annually  sums 

(88) 


REPORT   OF   SPECIAL   PANAMA   CANAL    COMMISSION.  39 

have  been  deposited  in  the  Treasury  from  all  of  these  and  other 
activities. 

If  we  were  approaching  this  question  as  for  a  decision  as  to 
whether  these  facilities  should  be  installed,  the  matter  might  be 
debatable.  But  a  decision  to  scrap  any  or  all  of  them  as  installed, 
or  to  arbitrarily  reduce  them  to  a  point  whence  they  could  not  be 
restored,  for  no  other  reason  than  that  no  part  of  their  cost  happens 
to  be  charged  off  to  national  defense,  or  because  an  annual  sum  is 
not  transferred  from  Navy  appropriations  to  the  Panama  Canal 
appropriations,  would  be  a  Governmental  policy  against  which  I 
must  enter  a  strong  protest. 

I  concur  in  the  commission's  doubts  as  to  the  possibility  of  arriv- 
ing at  a  written  down  cost  of  the  canal ;  and  I  have  further  doubts 
as  to  the  value  of  such  a  study  even  were  it  capable  of  accurate 
solution.  I  should  certainly  object  to  any  policy  that  would  attempt 
to  make  each  detailed  subdivision  of  activity  self-supporting. 

TROPICAL   LABOR. 

I  am  in  accord  with  the  basic  idea  of  this  recommendation,  but 
I  believe  the  commission's  view  is  much  more  radical  than  would 
be  safe.  There  is  doubtless  some  point  between  their  recommen-  • 
dations  as  I  read  them  and  our  present  system,  to  which  this 
plan  can  be  safely  carried,  and  I  would  favor  undertaking  a 
gradual  transfer.  I  confess  myself  hopeless  of  reaching  any  such 
goal  as  they  probably  contemplate.  We  have  here  a  highly  efficient 
plant;  we  must  have  nationals  to  give  a  reasonable  assurance  of 
operation  in  a  national  crisis.  Many  operators  require  consider- 
able training  even  after  apprenticeship  and  mastery  of  some  craft 
I  would  strongly  recommend  against  any  attempt  to  replace  any 
such  men  by  aliens.  Nor  do  I  believe  the  adoption  of  such  a  policy, 
except  to  a  limited  extent,  would  be  wise.  Our  present  excellent 
force  would  become  at  once  demoralized,  and  many  of  them  would 
leave  us  at  the  first  available  opportunity,  and  this  would  be  the 
case  whether  they  were  union  men  or  not.  If  the  commission's 
recommendation  in  this  matter  be  considered  to  cover  the  unim- 
portant  positions  in  the  service,  I  concur. 

RENTS,   ETC. 

The  commission  made  cable  recommendation  to  you  on  this  matter 
and  advised  my  concurrences.  You  may  have  noted  that  their  recom- 
mendation went  somewhat  further  than  the  recommendation  I  had 
made  in  April.  It  now  goes  slightly  further  than  that  with  which 
I  concurred.  I  believe  water  and  light  should  be  furnished  approxi- 
mately at  cost,  but  even  at  this  these  charges  may  turn  out  to  be 
somewhat  higher  than  would  be  fair  to  our  employees.  Since  my 
concurrence  with  their  cable  recommendation  the  Navy  Yard  sched- 
ule has  been  announced  and  its  reduction  is  somewhat  greater  than 
I  anticipated.  Also,  I  have  supplemented  my  approval  by  a  sepa- 
rate recommendation  as  to  those  officials  whose  compensation  has  not 
risen  in  years.  I  am  loath  to  recommend  action  which  may  eat  into 
our  force  rapidly  through  the  operation  of  the  law  of  supply  and 
demand  after  the  present  industrial  depression  has  passed,  and  I  do 
not  desire  to  be  unfair  to  men  who  have  given  their  best,  who  remain 


40  REPOKT   OF   SPECIAL   PANAMA    CANAL    COMMISSION. 

the  survivors  of  a  long-  competition,  and  who  have  demonstrated,  their 
loyalty  and  efficiency  even  though  at  times  subject  to  criticism  for 
improper  union  activities. 

I  am,  however,  able  to  concur  in  the  commission's  recommendation 
subject  to  the  changes  as  to  water  and  light  as  I  have  indicated,  and 
subject  to  the  recommendation  as  to  officials  elsewhere  made',  though 
if  I  Ave  re  to  fix  it  myself  I  would  return  to  a  plan  which  would  give 
charges  approximating  those  which  would  result  from  my  original 
recommendation. 

WAGES. 

I  find  myself  practically  in  agreement  with  this,  though  it  might 
be  clearer  and  I  might  be  in  disagreement  if  my  attention  were  called 
to  the  specific  cases  of  high  wages  referred  to.  I  believe  we  have  a 
good  organization  for  assembling  wage  data,  and  in  the  25  per  cent 
rule  a  good  basis  to  adhere  to,  and  in  most  cases  the  adjustments 
have  been  made  with  more  care  and  greater  accuracy  than  in  most 
wage  adjustments  during  the  same  period  in  the  States. 

LEAVE. 

I  can  not  concur  in  this.  Our  leave  privileges  have  been  tested  by 
•time  and  in  my  opinion  are  not  excessive  for  the  white  man  in  the 
Tropics.  And  I  am  convinced  that  it  is  not  unreasonable  for  our 
employee  to  get,  for  himself  and  dependent  members  of  his  actual 
family,  transportation  to  and  from  his  home  land  at  approximately 
cost. 

OPEN  SHOP. 

AVith  some  of  the  tenets  of  union  labor  I  am  not  in  accord,  and  I 
agree  that  our  employees  have  not  been  as  free  of  these  practices  as 
I  could  have  wished.  At  the  same  time,  I  do  not  believe  they  have 
differed  from  American  labor  as  a  whole,  and  they  have  certainly  de- 
livered the  return  for  what  may  possibly  be  designated  as  liberal 
treatment,  and  have  done  it  with  less  industrial  friction  than  else- 
where. I  know  of  no  way  to  prevent  an  American  citizen  from  be- 
longing to  an  organized  union  if  he  so  desires,  nor  of  any  practical 
way  to  insure  that  we  shall  have  any  specified  proportion  of  non- 
union men  in  our  employ.  I  believe  that  if  our  treatment  of  em- 
ployees is  fair  it  will  be  so  recognized  by  them  whether  they  are 
union  or  nonunion  (even  though  they  may  not  admit  it)  ;  that  they 
will  hesitate  to  use  the  strike  weapon,  as  a  fair  proportion  of  them 
recognize  the  fact  that  a  strike  following  administrative  action  that 
is  not  unfair,  may  well  bring  a  law  or  Executive  order  requiring  em- 
ployees to  renounce  the  right  to  strike  or  to  leave  until  their  places 
can  be  filled.  But  I  do  not  believe  the  way  to  get  this  is  along  the 
lines  recommended  by  the  commission,  as  I  believe  it  would  start  off 
under  a  handicap  which  I  personally  would  not  care  to  incur.  It 
shall  be  my  effort,  while  governor,  to  accord  the  employees  a  square 
deal,  so  far  as  the  law  and  available  funds  permit,  dealing  with 
them  openly,  whether  union  or  nonunion,  making  reasonable  con- 
cessions, and  using  the  power  of  the  office  to  force  a  square  deal 
where  the  men  refuse  to  agree  to  it.  If  such  a  policy  fails  to  avoid 
labor  troubles,  which  nobody  wants  to  see,  the  power  of  public  opin- 
ion on  a  work  like  ours  will  be  a  tremendous  asset,  one  which  I  am 
not  willing  to  discard  by  subscribing  to  any  policy  other  than  out- 
lined. 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  41 

I  am  in  accord  with  the  recommendation  as  to  dealing  with  em- 
ployees' committees,  and  agree  that  agreements  limiting  the  use  of 
tropical  labor  should  be  considerably  revised;  but  I  can  see  nothing 
of  value  in  the  Governor  being  prohibited  from  other  such  agree- 
ments, as  such  agreements  may  be  helpful  to  both  sides. 

We  are  now  in  a  period  of  industrial  depression.  Even  assuming 
the  policy  as  recommended  by  the  commission  to  be  entirely  fair,  its 
adoption  now  would  subject  the  Government  to  the  criticism  that  it 
•  is  a  reactionary  doctrine  enforced  at  a  time  when  labor  is  almost 
powerless  to  retaliate.  I  should  hesitate  to  do  this,  and  I  am  also 
desirous  of  avoiding  the  charge  of  doing  it.  which  would  tend  to  set 
back  the  final  solution  of  the  labor  question  everywhere — a  long 
process  at  best. 

PANAMA    RAILROAD    SEPARATION    PROM    CANAL. 

I  can  not  agree  with  this.  The  Panama  Railroad  has  been  a  useful 
servant  of  the  canal  during  construction,  and  was  in  addition  a  com- 
mercial organization  prior  to  the  opening  of  the  canal.  Xow  its 
main  and  almost  sole  function  is  that  of  an  adjunct  to  the  canal.  As 
such  its  Isthmian  operation  must  be  kept  directly  under  the  control 
of  the  Governor.  This  can  be  done  without  interfering  with  possible 
development  of  traffic,  which  is  bound  to  be  a  slow  matter. 

ENCOURAGEMENT   OF   AGRICULTURE. 

This  involves  a  definite  change  of  policy  but  seems  particularly 
urgent  at  the  present  time  as  the  only  possible  way  out  of  an  im- 
pending distressing  situation.  I  concur  in  so  far  as  native  labor  is 
involved.  I  am  not  yet  prepared  to  recommend  the  broader  opening 
up  referred  to  in  the  closing  paragraph  of  the  commission's  recom- 
mendation. 

NEW  AUDITING  SYSTEM. 

I  believe  the  commission's  criticism  of  the  auditor's  functions  are 
based  on  misapprehension,  due  principally  to  the  fact  that  Mr. 
Wilson  arrived  at  the  canal  a  week  later  than'  the  other  members  of 
the  commission  and  during  his  stay  the  auditor's  office  was  excep- 
tionally busy  not  only  with  the  allotments  for  the  new  fiscal  year, 
with  the  preparation  of  estimates  for  1923,  and  with  collection  of 
data  for  annual  report,  but  also  with  the  special  work  called  for  by 
the'  recently  created  Budget  Bureau. 

Panama  Canal  auditing  differs  from  both  governmental  auditing 
and  business  auditing  and  accounting,  partaking  of  the  nature  of 
both.  It  is  difficult  to  mix  two  such  different  systems,  and  }Tet  both 
are  required.  We  must  comply  with  the  laws  and  regulations  de- 
signed for  the  control  of  solely  disbursing  agencies,  and  yet  handle 
business  operations  involving  receipts  and  disbursements  and  profit 
and  loss  accounts.  It  required  special  legislation  to  establish  the 
present  system,  relieving  us  of  much  detailed  reporting.  The  sys- 
tem in  vogue  had  the  expert  advice  of  an  accountant,  Mr.  Francis 
Oakey,  in  1914,  and  it  has  been  modified  and  changed  only  as  ex- 
perience and  changing  conditions  advised  it.  If  it  is  defective 
(which  I  do  not  believe),  it  can  be  changed.  But  it  is  certain  that 
the  commission's  recommendations  will  not  result  in  any  economy, 
rather  the  reverse ;  and  I  am  convinced  that  the  additional  labor  re- 


42  REPORT    OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

quired  after  the  separation  from  the  auditor  of  some  of  his  work 
would  not  give  returns  commensurate  with  the  expense,  nor  would 
the  Governor  be  able  to  as  closely  control  operations  as  he  now  does 
through  centralization  of  practically  all  of  this  work  under  one  head. 

As  to  the  criticism  of  the  executive  functions  of  the  auditor,  these 
are  of  exactly  the  same  nature  as  the  criticisms  that  have  been  ad- 
vanced against  the  new  office  of  Director  of  the  Budget,  but  on  a 
smaller  scale  and  with  much  less  force,  as  the  Governor  is  far  more 
able  to  give  individual  attention  to  protests  from  his  division  heads 
than  Avould  be  the  President.  The  auditor  has  no  executive  func- 
tions except  in  his  own  division.  Many  of  his  acts  appear  so,  but 
none  of  them  are  performed  without  either  the  written  or  oral  ap- 
proval of  the  Governor.  There  is  bound  to  be  a  certain  amount  of 
vexation  on  the  part  of  other  division  heads  (who.  by  the  way,  some- 
times obtain  the  decision),  but  these  are  only  signs  of  health,  and 
give  proof  of  the  fact  that  the  control  is  where  it  belongs,  in  the 
hands  of  the  Governor. 

I  find  myself  unable  to  concur  in  any  of  these  recommendations, 
though  the  matter  is  one  which  may  require  additional  study. 

EXECUTIVE   OFFICER. 

I  can  not  concur  in  this  recommendation.  The  Governor's  pay  is 
fixed  by  law.  Such  an  official,  if  secured  from  civil  life,  would  have 
to  be  paid  more,  an  intolerable  situation.  The  operation  of  the 
canal  is  essentially  a  big  engineering  and  business  proposition.  So 
long  as  the  system  of  the  past  is  retained  and  a  Governor  and  engi- 
neer of  maintenance  are  selected  from  the  Corps  of  Engineers,  the 
solution  will  be  satisfactory  enough,  as  when  both  are  present  the 
engineer  of  maintenance  to  a  large  extent  is  chief  advisor  and  chief 
coordinator  on  the  Governor's  staff.  It  was  unfortunate  that  during 
the  visit  of  the  commission  the  engineer  of  maintenance  was  present 
only  a  few  days,  a  fact  which  prevented  their  seeing  the  adminis- 
trative system  operating  as  designed,  and  also  prevented  my  giving 
their  work  as  much  individual  attention  as  it  should  have  had. 

EXECUTIVE  AND  OPERATIVE  PAY. 

We  have  in  this  recommendation  a  comment  on  an  inherent. de- 
fect in  Government  service.  The  statement  is  unassailable,  yet  a 
change  is  probably  impossible.  The  recommendation  I  have  made 
as  to  rental  and  other  charges  for  officials  may  help  a  little,  but  it 
ought  to  be  apparent  to  anyone  that  authority  of  Congress  for  any 
increase  in  pay  of  officials  at  the  present  time  would  be  impossible, 
and  I  myself  would  deem  them  unwise  under  our  political  system. 

SCHOOLS. 

Efforts  will  be  made  along  the  lines  suggested,  but  it  is  not  ex- 
pected that  much  can  be  accomplished  with  available  funds.  Nor 
have  I  much  hope  of  any  accomplishment  along  the  lines  of  ap- 
prenticeship in  trades. 


REPORT   OF   SPECIAL  PANAMA   CANAL   COMMISSION.  43 

POLICE   AND  FIRE. 

I  am  in  general  accord  with  this,  but  not  as  to  all  details.  It  may 
be  possible  to  make  some  changes,  but  the  funds  saved  would  be 
better  applied  in  other  civil  government  functions  than  in  installing 
the  two-platoon  system,  this  latter  idea  also  apparently  being  the 
view  of  the  commission. 

CIVIL  AFFAIRS. 

This  recommendation  if  followed  would  strike  a  vital  blow  at 
efficiency  in  Canal  Zone  Government.  The  canal  has,  largely  through 
its  own  experience  in  construction  days,  and  with  full  cooperation 
of  responsible  legislative  committees,  emerged  with  a  government  in 
which,  the  President,  being  responsible,  has  decided  that,  with  the 
single  exception  of  the  courts,  everything  is  governed  by  the  Secre- 
tary of  War,  and  through  him  by  the  Governor,  who  acts  under 
laws  and  executive  orders.  It  can  be  demonstrated  that  the  changes 
herein  recommended,  while  in  some  cases  saving  expense  to  the  canal, 
will  in  all  cases  greatly  add  to  the  expense  to  the  United  St'ates.  But 
above  all  they  will  vastly  decrease  efficiency  in  government  and 
service,  and  in  particular  will  greatly  hamper  the  one  thing  we  are 
mainly  down  here  for,  viz,  the  safe,  expeditious,  and  satisfactory 
handling  of  commerce  between  the  two  oceans.  The  Canal  Zone, 
above  all  other  places  in  the  world,  is  a  government  reservation  with 
one  broad  mission,  viz,  to  serve  the  world's  commerce  expeditiously 
and  well,  and  to  bend  all  governmental  functions  to  this  end  along 
practical  and  economical  lines.  This  can  only  be  hampered  by 
diffusion  of  responsibility;  and  I  must  recommend  most  strongly 
that  we  do  not  revert  to  a  policy  which  our  experience  has  rightly 
led  us  to  discard,  and  to  abandon  a  correct  policy  which  we  have 
evolved. 

COURTS. 
I  can  concur  with  this  recommendation. 

MUNICIPAL  DIVISION. 

Much  of  this  has  been  done  and  is  proceeding.  (The  report  errs 
in  statement  that  former  building  division  went  to  this  division;  it 
went  to  the  quartermaster  section  of  the  supply  department.)  There 
are,  however,  many  recommendations  with  which  I  can  not  concur, 
at  least  without  further  study. 

RELATIONS  WITH  PANAMA. 

These  matters  have  been  fairly  fully  covered  by  recent  correspond- 
ence. I  can  not  agree  with  the  commission  that  supply  should  be 
left  to  individuals  or  corporations,  for  the  principal  reason  that  it 
would  not  be  done  if  it  was.  If  the  commission  were  as  familiar  as 
our  officials  are  with  Panaman  character  and  with  efforts  of  Ameri- 
can firms  to  do  business  in  this  country,  its  members  would  appreciate 
that  service  would  be  vastly  inferior  and  more  expensive,  and  there 
would  be  instant  and  strong  clamor  for  a  return  to  our  present  sys- 
tem. All  of  the  questions,  however,  in  this  subhead  of  the  report 
only  confirm  my  recommendations  for  revocation  of  the  Taft  Agree- 
ment and  entering  into  a  new  treaty. 

As  to  direct  action  between  the  Governor  and  Panama  this  also 
has  been  properly  settled,  and  should  stay  settled.     Since  the  com- 


44  BEPOBT   OF   SPECIAL   PANAMA   CANAL    COMMISSION. 

mission  presented  its  report  to  .yon,  we  have  had  one  instance  in  which 
it  worked  and  worked  well,  where  the  so-called  proper  action  of  the 
State  Department  was  not  getting  anywhere.  The  Governor  is 
charged  with  the  responsibility  of  taking  over  police  protection  on 
Panama  soil  when  necessary  for  the  protection  or  operation  of  the 
canal.  Is  the  Governor  going  to  have  to  do  this  by  cabling  to  the 
State  Department  for  a  notice  to  be  served,  or  even  by  asking  the 
American  Minister  in  Panama  to  deliver  this  notice  (which  would 
not  be  State  Department  action  unless  the  Minister  were  authorized 
to  do  so)  %  This  certainly  will  not  be  effective  in  heading  off  riots 
or  revolutions,  and  will  not  be  clone  while  the  undersigned  holds  any 
such  responsibility  as  Governor. 

RELATIONS  WITH  THE  MILITARY. 

Most  of  these  matters  are  matters  that  have  been  threshed  out  sev- 
eral times,  and  the  canal  government  has  made  so  many  concessions 
to  the  military  authorities  in  the  interest  of  harmony  that  I  am  safe 
in  saying  we  have  fulfilled- all  the  requirements  of- cooperation.  We 
can  not,  however,  expend  funds  appropriated  for  one  purpose  for 
another,  and  we  can  not  agree  that  the  universal  rule  of  right  of  way 
for  the  ship  shall  be  abrogated  on  a  waterway  of  the  supreme  im- 
portance of  the  canal.  Aside  from  the  military  transportation  there 
is  not  now' any  necessity  for  traffic  crossing  the  canal  that  can  not 
be  accommodated  on  the  lock  gates  as  they  are.  When  this  necessity 
exists  a  means  will  be  found,  but  it  would  be  a  great  mistake  to  install 
a  bridge,  at  least  until  this  land  traffic  has  assumed  such  size  as  to 
justify  the  cost  and  risk,  which  will  be  far  in  the  future. 

The  question  as  to  a  roadway  from  Gatun  to  Gamboa  can  be  taken 
up  when  there  is  any  reasonable  probability  of  obtaining  funds  for 
its  construction.  It  may  be  desired  as  a  military  asset.  The  Panama 
Canal  does  not  need  it,  but  would  be  entirely  willing  to  use  prisoners 
on  it. 

HEALTH  DEPARTMENT. 

There  are  some  detailed  recommendations  here  that  may  well  be 
made  the  subject  of  further  inquiry. 

I  am  not  opposed  to  the  recommendation  to  charge  for  dispensary 
service  except  to  employees,  and  have  already  recommended  a 
charge  for  subsistence  in  hospitals. 

I  am  not  in  favor  of  dispensing  with  civilians  and  substituting 
Army  surgeons  unless  the  time  comes  that  we  lose  some  of  our  present 
excellent  staff.  The  question  of  turning  Ancon  Hospital  over  to  the 
Army  has  been  given  serious  consideration  (every  two  or  three 
years).  Its  work  for  the  Army  now  is  about  10  per  cent  of  its 
work.  The  superintendent  and  assistant  superintendent  are  officers  of 
the  Army  and  probably  will  continue  so,  as  is  also  the  chief  health 
officer,  who  is  responsible  for  general  health  conditions  and  should 
certainly  not  be  deprived  of  control  of  one  of  his  principal  assets  in 
this  work,  as  would  be  the  case  if  Ahcon  Hospital  were  transferred 
to  the  Army. 

SANITATION  DIVISION. 

The  securing  of  full  payment  for  sanitary  work  done  for  Panama 
in  the  terminal  cities  is  another  question  which  may  be  taken  up  in 
negotiating  the  new  treaty.    The  canal  has  attempted  to  obtain  more 


REPORT   OF   SPECIAL   PANAMA    CANAL   COMMISSION.  45 

equitable  payments,  but  without  success.  The  alternative  is  to  re- 
quire Panama  to  do  its  own  sanitation  which,  while  agreeable  to 
Panama,  would  probably  not  produce  necessary  results,  or  if  pro- 
duced, would  result  in  much  friction.  The  sanitation  of  the  two 
cities,  besides,  is  worth  something  to  the  canal,  though  probably  not 
as  much  as  the  annual  deficit.  As  to  our  own  sanitary  work,  it  may 
be  said  to  be  lessening  annually,  as  more  and  more  permanent  drains 
are  completed.  There  have  been  economies  introduced  already,  and 
as  time  goes  on  there  will  be  more. 

I  am  unalterably  opposed  to  the  transfer  of  our  quarantine  service 
to  the  Public  Health  Service.  Cost  would  be  greater,  service  far  less 
efficient  through  inherent  difficulties  of  cooperation,  and  canal  traffic 
would  be  impeded. 

ACCOUNTING  DEPARTMENT. 

This  is  touched  on  elsewhere  except  as  to  the  proposed  consolida- 
tion of  the  offices  of  paymaster  and  collector.  This  was  given  con- 
sideration in  formulating  the  Panama  Canal  Act.  The  proposal  looks 
attractive  as  indicating  a  saving,  but  the  saving  would  be  small,  prob- 
ably $7,500  a  year.  This  would  be  a  small  saving  to  effect  for  the 
surrender  of  the  additional  safeguards  thrown  around  the  handling 
of  some  $20,000,000  a  year  in  each  office  by  the  separation  of  collect- 
ing from  disbursing  functions.  I  am  unable  to  concur  in  the  pro- 
posed change. 

I  am  unable  to  concur  in  a  separate  auditing  force  for  the  railroad, 
or  to  pay-roll  preparation  by  each  division,  as  making  for  expense 
rather  than  for  saving ;  nor  can  I  .concur  in  injecting  capital  cost  and 
depreciation  charges  in  all  cases,  nor  that  any  saving  can  be  made  or 
greater  accuracy  commensurate  with  cost  secured  by  setting  up  an 
instrumentality  to  secure  it  in  more  detail. 

SUPPLY  DEPARTMENT. 

The  idea  of  transferring  purchases,  supply  and  storekeeping  to 
the  Panama  Railroad  looks  attractive,  though  it  hardly  agrees  with 
an  earlier  recommendation  for  divorce  of  activities.  There  is  no 
question  but  that  official  red  tape  handicaps  efficient  business  and 
The  Panama  Canal  suffers  exceptionally  in  this  respect,  and  may 
possibly  suffer  more  as  the  supply  service  of  the  Budget  Bureau 
grows.  I  would  emphatically  favor  this  plan  except  that  it  doubtless 
will  require  legislation  which  will  be  difficult  to  secure,  while  we 
might  much  more  easily  obtain  legislation  which  will  relieve  us  of 
some  of  our  troubles  under  the  existing  system.  Also  I  can  foresee 
endless  complaints  reaching  our  office  through  the  Secretary  of  War, 
backed  by  high  officials  of  the  Government  service.  There  would  be 
complaints  of  not  having  goods  considered,  of  not  being  asked  for 
bids,  charges  of  graft  and  incompetency.  Before  embarking  on 
this  plan  all  higher  officials  (Governor,  Secretary,  and  President) 
should  contemplate  a  continued  resistance  to  all  kinds  of  political 
pressure  for  at  least  two  or  three  years  until  the  system  had  proven 
itself.  With  the  necessary  legislation  and  this  resolution  to  give 
it  a  fair  trial,  it  would  doubtless  effect  considerable  savings.  Doubt- 
less then  a  time  would  come  when  some   official  were   caught  in 


46  REPORT   OF    SPECIAL   PAXA.MA    CANAL    COMMISSION. 

"graft."  and  the  whole  scheme  would  come  back  to  the  usual  and 
exceedingly  hampering  system  now  in  use. 

As  to  throwing  the  Zone  open  to  private  business,  I  am  convinced 
of  the  impracticability  of  this  at  the  present  time.  Many  questions 
are  involved,  as  will  appear  in  the  negotiation  of  the  new  treaty  with 
Panama. 

Steps  have  already  been  taken  looking  toward  a  reduction  of 
stocks,  and  toward  stricter  control  along  lines  recommended.  Four 
months,  however,  is  too  short  a  period  to  cover. 

Other  recommendations  should  be  given  further  study. 

COMMISSARY  DIVISION. 

These  detailed  recommendations  are  worthy  of  consideration  and 
study.  I  can  not  see  how  cash  sales  will  lessen  Panama's  complaint. 
This  is  a  problem  with  which  the  canal  has  worked  for  j^ears.  There 
is  no  solution  that,  has  not  some  objections.  I  can  but  report  that 
we  are  prepared  to  give  the  greatest  weight  to  this  recommendation, 
in  further  consideration  and  study  of  a  difficult  problem. 

As  to  transfer  of  activities  (cattle,  hog,  and  dairy)  to  private  busi- 
ness, this  might  be  accomplished  if  desired,  and  economies  might 
thereby  be  effected.  All  of  the  businesses,  however,  are  valuable 
assets  to  the  supply,  and  the  dairy,  though  carried  on  at  high  costs, 
is  practically  indispensable  from  the  health  viewpoint. 

■  I  can  not  concur  in  many  of  the  minor  recommendations  referred 
to ;  in  some  I  concur,  and  some  have  already  been  accomplished. 

RESTAURANTS   AND   HOTELS. 

The  basis  for  the  main  criticism  here  stands  or  falls  with  the  rent 
question.  As  soon  as  rent  to  gold  employees  is  authorized,  the  service 
at  these  places  will  carry  corresponding  charges.  The  principal  ob- 
jection against  leasing  the  Hotel  Washington  is  the  desire  to  main- 
tain at  each  terminus  at  least  one  first-class  hotel  under  direct  con- 
trol. A  lease  of  this  plant  to  an  individual  would  almost  certainly 
result  in  all  sorts  of  criticism  from  many  distinguished  visitors. 

Other  minor  recommendations  are  worthy  of  study ;  some  few  have 
already  been  adopted. 

ELECTRICAL    DIVISION. 

The  statement  of  the  emergency  use  of  the  steam  plant  which  is 
floating  on  the  power  line  is  not  quite  accurate.  The  one  most  dan- 
gerous place  under  power  failure  is  at  the  lower  lock  at  Miraflores, 
but  the  danger  is  more  than  the  mere  flooding  of  the  lower  chamber. 
When  tide  is  high  at  Pacific  entrance  water  has  to  be  passed  from  the 
upper  chamber  past  the  lower  chamber  and  wasted  in  order  to  avoid 
flooding  lower  chamber  when  equalized.  If  the  power  were  to  fail 
while  these  valves  are  open  a  heavy  vessel  might  be  set  down  on  the 
floor  of  the  upper  chamber  before  the  valves  could  be  closed  by  hand. 
Such  an  incident  is  of  course  remote,  but  if  it  came  it  would  be  ex- 
ceedingly expensive,  and  if  it  were  to  come  while  the  opposite  cham- 
ber were  under  overhaul  the  canal  would  be  closed  for  several  days, 
while  the  mere  flooding  of  chamber  would  close  the  canal  only  a  few 
hours. 


REPORT   OP   SPECIAL   PANAMA    CANAL   COMMISSION.  47 

The  output  of  the  steam  plant  during  the  fiscal  year  just  dosed 
was  considerably  less  than  1  per  cent  of  the  total  power,  due  to  the 
small  number  of  interruptions  in  transmission.  It  is  believed  that, 
in  view  of  the  fact  that  in  a  very  few  years  a  steam  plant  is  going 
to  be  necessary  in  the  dry  season  for  economizing  water,  and  also  as 
the  floating-  of  a  steam  unit  on  the  line  gives  the  valuable  insurance 
referred  to  above,  and  also  performs  a  valuable  function  as  syn- 
chronous condensers  for  power  factor  improvement  and  voltage 
regulation,  the  present  use  of  this  plant  should  be  continued  and  its 
gradual  replacement  effected,  though  it  is  quite  possible  that  very 
considerable  economies  in  operation  can  be  effected.  Studies  along 
this  line  were  started  some  months  ago.  It  may  also  be  that  further 
study  will  bring  my  views  and  those  of  the  commission  into  closer 
parallel. 

Other  recommendations  are  worthy  of  further  study,  though  I 
must  confess  my  doubts  as  to  being  able  to  furnish  dependable 
service  with  the  full  cuts  recommended. 

CLUBS  AND  PLAYGROUNDS. 

The  matters  herein  presented  have  been  given  study  since  the 
visit  of  the  commission,  and  one  large  clubhouse  is  being  run  on  one 
shift  as  an  experiment.  The  statement  that  80  per  cent  of  business 
is  done  in  afternoon  and  evening  is  inaccurate,  even  if  the  eleven 
after  noon  hours  are  covered.  The  percentage  as  between  the  two 
shifts  (before  and  after  3  p.  m.)  are  more  nearly  40  and  60.  The 
commission  may  not  have  considered  the  fact  that  charges  adjusted 
as  recommended  might  operate  to  decrease  revenues  in  greater  pro- 
portion than  expenses,  or  force  the  closing  of  the  clubhouses,  which 
would  be  most  unfortunate,  as  manj^  employees  would  thereby  be 
forced  into  the  surroundings  of  Panama  and  Colon,  extremely  unde- 
sirable for  many  of  them.  However,  the  matter  is  well  worthy  of 
study,  but  the  changes  should  not  be  too  precipitate. 

RECORD  AND   PERSONNEL  BUREAUS. 

The  Panama  Canal  has  learned  by  experience  that  a  dissemination 
of  the  duties  as  recommended  would  not  only  greatly  hamper  the 
transaction  of  the  involved  business  operations  of  the  canal  and 
railroad,  but  would  add  very  greatly  to  the  expense.  I  can  not 
concur  in  either  of  these  recommendations. 

PROPERTY  AND  REQUISITION  BUREAU. 

This  is  worthy  of  study,  but  I  doubt  if  much  saving  can  be  effected 
should  the  bureau  not  be  merged  into  a  purchasing  department  as 
elsewhere  suggested. 

BUREAU    OF    STATISTICS. 

Incidental  to  the  words  of  commendation  of  this  office,  I  venture 
the  mild  suggestion  that  this  is  the  one  function  of  the  canal  organi- 
zation with  which  the  commission  became  extremely  familiar,  and 
that  it  is  possible  that  a  similarly  close  study  of  other  sections  might 
have  eliminated  some  of  the  critical  impressions  formed. 


48  REPORT    OF   SPECIAL  PANAMA   CANAL   COMMISSION. 

As  to  The  Panama  Canal  Record,  I  should  vote  most  strongly 
against  its  discontinuance.  It  performs  an  advertising  function  for 
the  canal  which  in  my  opinion  is  worth  at  least  ten  times  its  annual 
cost — which  has  been  reduced  from  $17,000  to  about  $11,000  since  the 
visit  of  the  commission. 

WASHINGTON   OFFICE. 

These  recommendations  are  dependent  on  others.  There  is  no 
doubt  that  economies  in  the  force  of  this  office  can  be  effected  with 
the  decline  of  construction  and  purchasing  duties  which  confront 
us  for  the  next  two  or  three  years.  The  matter  is  well  worthy  of 
study. 

LOCK  OPERATION. 

The  new  system  of  dispatching  gives  all  promise  of  success  and 
will  in  all  probability  be  adopted.  It  may,  however,  fail  with  the 
increase  of  traffic  that  may  come  to  us  in  a  year  or  two.  It  will  effect 
considerable  economies.  Some  economies  may  also  be  effected  in 
the  supervisorv  force,  but  I  have  no  hope  of  reaching  all  the  cuts 
suggested  by  Captain  Fry. 

DREDGING    DIVISION. 

.  Efforts  have  been  made  to  loan  the  dredge  Culebra  to  the  Engi- 
neer Department,  U.  S.  Army,  and  if  the  operations  of  that  Depart- 
ment warrant  it  the  dredge  will  be  permanently  transferred,  and 
hired  back  when  required  for  our  occasional  work.  We  also 
expect  to  lease  a  pipe-line  dredge  to  Ecuadorian  or  Colombian  in- 
terests, and  had  started  negotiations  to  that  effect  six  months  ago. 

I  might  here  again  be  pardoned  for  venturing  another  mild  sugges- 
tion. The  slide  of  July  14th,  which  occurred  while  the  commission 
was  at  the  canal,  was  the  only  considerable  emergency  that  con- 
fronted canal  operations  during  their  stay.  It  was  handled  effi- 
ciently, under  their  observation.  (They  are,  however,  slightly  in 
error,  as  the  big  battleships  passed  on  the  16th,  not  the  17th.)  This 
occurrence  undoubtedly  elided  from  their  report  a  recommendation 
to  eliminate  a  stand-by  tug  for  the  dredging  division.  It  is  sug- 
gested that  other  emergencies  might  have  caused  other  elisions  or 
at  least  have  impressed  the  commission  more  than  is  apparent  with 
the  practical  difficulties  of  conducting  work  so  far  from  the  nearest 
port  from  which  assistance  may  be  obtained. 

MARINE  DIVISION. 

The  Panama  Canal,  unfortunately,  is  not  in  a  position  to  meet 
anything  but  a  reasonably  permanent  change  in  volume  of  business, 
nor  can  it,  as  practically  all  other  port  works  could  do,  place  equip- 
ment in  reserve  with  a  view  to  suddenly  recommissioning  it,  or  de- 
pend for  any  peak  of  its  service  on  hire  of  tugs.  What  we  have  is 
all  there  is,  not  only  for  our  own  service,  but  for  occasional  service 
to  neighboring  ports.  Such  a  service  as  that  of  our  marine  divi- 
sion can  not  at  the  present  time  be  self-sustaining  except  by  charges 
that  would  be  criticized  the  world  over  as  exorbitant.  I  can  not  con- 
cur in  all  the  reductions  of  equipment  recommended,  though  some  of 


REPORT   OF   SPECIAL   PANAMA    CANAL   COMMISSION.  49 

the  minor  recommendations  have  already  been  accomplished.  Other 
recommendations  are  worthy  of  consideration  and  are  receiving 
study. 

I  must  again  here  record  my  absolute  negative  against  the  recom- 
mendation to  transfer  the  Steamship  inspection  Service  to  the  simi- 
lar service  in  the  Department  of  Commerce,  as  this  will  but  add  ex- 
pense and  hamper  service. 

MECHANICAL    DIVISION. 

This  division,  in  the  fiscal  year  1921,  performed  about  $6,800,000 
worth  of  work,  of  which  over  $2,6005000  was  performed  for  outside 
agencies,  $2,350,000  for  the  canal,  about  $1,400,000  for  the  Panama 
Kailroad,  and  about  $400,000  for  other  governmental  agencies.  Ex- 
cept for  the  fact  that  overheads  do  not  include  amortization  or  de- 
preciation charges  (except  in  minor  instivices),  the  work  was  not 
done  at  a  loss. 

The  shops  get  some  outside  business,  as  indicated  above.  It  is  prac- 
tically certain  that  much  of  this  would  be  lost  if  our  charges  were  to 
be  fixed  to  carry  this  overhead.  Carrying  no  such  charges  they  can 
more  than  pay  their  way  if  the  shipping  world  is  busy.  It  is  quite 
true  that  this  condition  will  be  slow  in  returning  and  unfortunate 
retrenchments  may  be  necessary  unless  the  shops  can  be  given  some 
governmental  work  other  than  that  of  the  canal.  These  retrench- 
ments may  involve  the  temporary  closing  down  of  some  facilities  for 
repair  of  shipping,  but  I  am  positive  that  no  far-seeing  executive, 
keeping  the  national  value  of  this  utility  in  mind,  would  be  justified 
in  going  to  the  extreme  recommended  by  the  commission. 

The  detailed  recommendations  are  certainly  worthy  <?f  study, 
and  will  be  given  consideration. 

STEAMBOAT-INSPECTION  SERVICE. 

This  recommendation  is  directly  contrary  to  a  recommendation 
made  under  the  caption  "  Marine  Division."  It  is  worthy  of  study, 
and  is  much  better  than  the  other  recommendation.  However,  it 
also  contains  the  power  of  review  by  an  outside  agency,  which  would 
add  expense,  increase  possibilities  of  friction,  and  to  no  value  what- 
ever. It  may  be  wise  to  separate  the  functions  of  hull  and  boiler 
inspectors,  and  to  constitute  them  as  a  local  board.  It  certainly  is 
not  as  economical  as  the  existing  plan  which,  in  my  oj)inion,  is  fully 
equal  to  our  needs. 

METEOROLOGY  AND  HYDROGRAPHY. 

I  do  not  believe  it  wise  to  curtail  the  activities  of  this  section,  to 
the  extent  recommended.  Some  of  the  recommendations  would  re- 
strict service  to  shipping,  others  would  rob  us  of  valuable  meteoro- 
logical data  at  very  small  saving.  Some  of  the  recommendations, 
however,  are  worthy  of  study. 

PANAMA  RAILROAD. 

I  must  enter  a  strong  denial  to  the  statement  that  the  Panama 
Railroad  is  carrying  twice  as  many  employees  as  are  necessary  for 
efficient  operation.     This  is  not  so  now.  nor  was  it  so  when  the  com- 


50  EEPOET   OF   SPECIAL   PANAMA   CANAL    COMMISSION. 

mission  was  at  the  canal.  I  am  also  confident  that  the  commission 
will  not  insist  on  this  statement,  unless  they  mean  by  it  that  the 
railroad  could  do  all  its  railroad  business  with  half  its  employees, 
regardless  of  its  necessary  service  to  The  Panama  Canal. 

The  mistake  Mr.  Molitor  has  made  in  his  study  of  our  conditions 
is  in  comparing-  this  railroad  with  roads  in  the  States,  in  .a  totally 
different  climate,  and  surrounded  by  totally  different  trade  condi- 
tions. The  Panama  Railroad  was  first  a  short  transcontinental  line 
intended  to  serve  world  commerce  by  transfer  of  cargo  and  passen- 
gers from  ship  to  ship.  In  those  clays  no  one  would  have  thought  of 
subjecting  it  to  study  as  a  local  line  connecting  Panama  and  Aspin- 
wall.  Later,  while  still  performing  this  function,  it  became  also  a 
most  important  adjunct  to  expedite  the  construction  of  the  canal. 
When  the  canal  was  opened  it  almost  entirely  lost  its  first  character 
and  became  and  always  should  be  recognized  as  one  of  the  divisions 
of  the  canal.  For  the  convenience  of  using  its  corporate  character 
it  retains  its  business  name  and  organizations,  but  it  can  not  be 
separated  from  the  canal  without  increased  expense  and  poorer  serv- 
ice on  both  sides. 

Some  of  the  criticisms  of  our  cost  figures  and  of  our  service  are 
fair  and  steps  have  been  taken  changing  many  of  them  and  are  being- 
taken  to  correct  others ;  in  fact,  many  such  changes  had  been  made 
before  the  commission  arrived,  though  it  is  only  fair  to  state  that 
they  gave  us  much  assistance,  and  their  report  will  be  valuable  as 
assistance  in  other  changes. 

I  can  not  approve  of  modeling  our  practice  on  United  States  rail- 
road practice,  for  the  simple  reason  that  there  is  no  railroad  in  the 
States  at  all  comparable. 

I  can  not  approve  of  turning  the  railroad  shops  over  to  the  railroad. 
This  would  only  result  in  further  incapacitating  our  shops  for  com- 
mercial business  and  would  save  nothing. 

I  can  not  approve  of  a  separate  railroad  auditing,  rate-fixing,  and 
claims  force.  This  would  save  but  little,  if  anything,  and  would 
require  some  duplication  of  work. 

I  can  not  approve  of  an  organization  for  developing  traffic  be- 
yond that  which  we  have.  From  the  very  nature  of  the  case,  ex- 
cept for  the  field  of  developing  a  railroad  haul  across  the  Isthmus 
at  the  expense  of  a  water  haul,  such  an  organization  would  spend 
$20  to  secure  $2  worth  of  revenue,  of  which  $1  would  come  without 
the  expenditure. 

Most  of  the  services  are  good  revenue  producers,  though  some 
of  them  have  fallen  off  considerably  in  the  business  depression  of 
the  past  year.  Reductions  have  been  made  to  meet  this  depression, 
but  I  have  declined  to  absolutely  cripple  the  force  in  the  face  of  a 
slow  revival  already  indicated^  and  I  believe  this  is  a  wise  policy. 

I  can  not  concur  in  all  the  minor  recommendations  of  the  com- 
mission, though  some  of  them  will  doubtless  emerge  after  further 
study. 

PANAMA  RAILROAD   STEAMSHIP   CO. 

There  is  but  one  valid  reason  for  liquidating  this  line,  as  recom- 
mended, and  that  is  the  policy  of  Government  operation.  There  are 
powerful  private  interests  busy  along  this  same  line.     This  steam- 


REPORT   OF    SPECIAL   PANAMA    CANAL   COMMISSION.  51 

ship  line  lias  been  one  of  the  finest  instrumentalities  the  United 
States  has  had  in  assisting  United  States  shipping  in  its  struggle 
against  foreign  shipping.  A  decision  to  scrap  our  fleet  would  crown 
with  complete  success  this  insidious  foreign-controlled  propaganda, 
which  has  been  participated  in  by  some  American  lines,  and  to  some 
extent  by  the  Shipping  Board.  If  the  United  States  flag  is  to  go 
off  the  seas,  as  it  may  well  do  under  the  restrictions  imposed  on 
operation,  this  would  be  a  good  first  step  to  take,  but  I  desire  to 
go  on  record  as  opposed  to  it.  Your  attention  is  invited  to  Mr. 
Eossbottom's  recent  testimony  before  the  House  Committee  on  Mer- 
chant Marine  and  Fisheries  (House  bill  5348)  for  a  full  recital 
of  the  various  struggles  of  this  line  against  these  many  agencies. 
Your  attention  is  also  invited  to  the  fact  that  during  the  Great 
War,  in  spite  of  handicaps  imposed  by  requisitioning  of  ships,  this 
line  was  the  sole  dependence  of  all  the  territory  served  by  it,  and 
the  rates  were  maintained  in  spite  of  tremendous  rate  advances  the 
world  over. 

The  following  are  additional  reasons  for  continuing  these  op- 
erations : 

This  line  is  mainly  an  adjunct  of  the  canal,  and  by  the  Gov- 
ernor's control  thereof  he  is  given  an  agency  to  assist  in  efficient 
operation  that  is  most  valuable,  in  fact  well-nigh  indispensable. 
With  an  investment  of  over  half  a  billion,  with  a  dependent  popu- 
lation of  40,000  or  so,  2,000  miles  from  our  market,  and  with  a 
most  important  task  of  keeping  the  canal  efficiently  operated  and 
properly  manned,  it  is  not  unreasonable  to  insist  on  the  continued 
operation  of  a  line  of  supply.  Rather  should  serious  consideration 
be  given  to  throwing  the  business  of  troop  supply  to  the  Panama 
Railroad  boats. 

If  these  boats  are  removed,  rates  will  certainly  rise,  the  cost  of 
service  will  surely  be  greater  than  now,  and  within  a  year  the  entire 
West  Indian  and  South  American  trade  with  the  United  States  will 
be  controlled  by  steamship  lines  of  foreign  registry.  If  it  is  proposed 
to  charge  commercial  rates  to  employees  our  service  will  greatly 
suffer,  as  some  valuable  employees  will  doubtless  leave,  and  others 
"will  be  deterred  from  taking  necessary  leave.  If  it  is  proposed  to  pay 
part  of  employees'  travel  expense,  the  expense  to  the  Government 
will  be  that  much  more. 

I  can  not  concur  in  all  the  alternative  recommendations  as  to  op- 
erating these  ships,  though  some  of  them  are  worthy  of  our  consider- 
ation. Particularly  must  I  dissent  from  the  proposed  denial  of  use 
of  the  Balboa  shops  for  overhaul,  as  this  would  be  transferring  an 
operating  difficulty  from  one  agency  to  another  and  would  doubtless 
result  in  a  net  loss  to  the  Government,  though  possibly  appearing  as 
a  profit  to  the  steamship  line. 

GENERAL  REMARKS. 

I  have  not  had  time  to  thoroughly  analyze  all  detailed  recommenda- 
tions of  the  commission,  nor  to  check  the  estimated  saving  of 
$5,000,000  annually  estimated  by  the  commission,  part  of  which  would 
take  the  form  of  increased  receipts.  But  I  can  state  it  as  my  firm 
conviction,  backed  up  by  several  years'  service  at  the  canal  in  high 
responsible  positions,  that  the  adoption  of  these  recommendations 


52  REPORT   OF   SPECIAL   PANAMA    CANAL    COMMISSION. 

at  once  and  in  toto  would  ruin  the  canal.  We  would  soon  have  a 
halting,  limping  service,  damage  bills  to  an  incalculable  extent,  a 
very  considerable  traffic  loss,  a  wholesale  desertion  of  highly  expert 
employees,  resulting  in  a  disorganized  service  that  could  never  be  re- 
stored to  even  a  small  fraction  of  its  present  high  efficiency :  also  a 
valuable  strategic  asset  would  be  almost  totally  destroyed.  The  net 
result  would  be  an  actual  financial  loss,  as  well  as  a  great  loss  in  na- 
tional prestige. 

It  is  respectfully  suggested  that  the  Secretary  take  no  action  at 
present  on  matters  in  which  the  Governor  and  the  commission  differ. 
There  has  already  been  much  accomplished,  and  more  will  follow 
your  approval  of  the  points  recommended  by  them  in  which  I  al- 
ready concur,  plus  those  in  which  I  can  agree  after  further  study  and 
trial.  The  Secretary  of  War  and  the  Governor  are  the  two  officials 
most  interested  in  effecting  all  possible  reforms  consistent  with  effi- 
cient service  and  a  correct  national  policy,  as  they  are  also  the  two 
officials  most  concerned  in  checking  any  action  that  might  result  in 
disorganization  of  the  service.  The  commission's  report  is  valuable 
and  will  remain  so,  regardless  of  the  extent  to  which  its  recommenda- 
tions are  followed.  As  clearly  as  I  can  see  harm  in  a  too  hasty  adop- 
tion of  some  of  these,  can  I  see  benefits  that  will  accrue  from  a  more 
deliberate  action,  resulting  in  adoption  of  some  (some  gradually, 
some  tentatively,  some  possibly  at  a  very  early  date),  and  in  the  re- 
jection of  others. 

I  would  strongly  recommend  (and  I  believe  the  commission  will 
concur)  that  the  Secretary  take  advantage  of  any  possible  oppor- 
tunity to  visit  the  canal.  Many  of  your  predecessors  have  done  so 
with  great  advantage  to  the  public  service.  Such  a  visit  would  be 
of  inestimable  value  in  determining  your  action  along  the  lines  most 
advantageous  to  the  United  States  as  to  any  points  on  which  the 
Governor  and  the  commission  should  remain  in  disagreement. 

The  following  is  tentatively  suggested  as  a  plan  for  solution  of  the 
matters  pending : 

When  you  receive  this  report  the  undersigned  will  be  available  in 
Washington.  Let  the  Governor  and  the  commission  get  together  (or 
if  their  scattered  and  important  duties  prevent  them  getting  together, 
I  can  meet  with  each  of  them  in  turn,  either  in  Washington  or  New 
York) .  We  can  submit  a  joint  report  which  will  embrace  two  classes 
(or  at  most  three)  of  proposals: 

(a)  Changes  in  which  we  are  in  concurrence. 

(b)  Recommendations  in  which  we  are  in  agreement  that  further 
study  is  advisable.     And  possibly 

(c)  Recommendations  in  which  we  are  in  disagreement  without 
any  reasonable  chance  of  concurrence. 

The  matter  will  thus  come  before  you  with  the  issues  clear-cut.  and 
enable  you  to  arrive  at  the  necessary  decisions  without  unnecessary 
loss  of  your  valuable  time. 
Respectfully, 

Jay  J.  Morrow,  Governor. 


Letter  from  the  Secretary  of  War  to  the  Governor  of  The 
Panama  Canal,  approving  certain  recommendations  based 
upon  the  report  of  the  Special  Panama  Canal  Commission. 


War  Department, 

Washington,  October  18,  1921. 
The  Governor,  The  Panama  Canal, 

Washington)  D.  C. 
Sir  :  The  following  recommendations  submitted  by  yourself  and  the 
chairman  of  the  Special  Panama  Canal  Commission,  acting  as  a  com- 
mittee under  my  instructions  of  the  21st  ultimo,  are  approved,  with 
amendments  as  indicated,  and  you  are  directed  to  take  the  necessary 
steps  to  carry  them  into  effect  as  promptly  as  conditions  warrant : 

RECOMMENDATION    AS    TO    BASIS    OF    OPERATION. 

[Pa yes  7-8  of  Report.] 

A  careful  study  shall  be  made  of  the  cost  of  the  canal,  in  order 
to  establish,  if  possible,  a  capitalization  to  determine  a  fair  com- 
mercial value  that  should  be  fixed  for  the  canal  and  its  various 
allied  activities.  When  this  has  been  arrived  at,  the  actual  cost  of 
the  canal  and  its  activities  be  written  down  to  this  figure,  which 
should  thereafter  be  used  in  the  operation  and  official  reports  as 
capital  account  upon  which  returns  and  expenditures  should  be 
justified..  Having  arrived  at  this  figure,  it  will  be  subdivided  and 
an  allocation  be  made  to  each  auxiliary  activity  under  the  canal 
administration,  and  thereafter  the  sum  allotted  to  each  of  these 
activities  shall  be  the  one  that  must  be  used  in  justifying  the  con- 
tinued existence  of  the  activity  concerned ;  but  in  case  the  operations 
show  a  loss,  the  Governor  may  present  to  the  Secretary  of  War  a 
statement  of  reasons  why  the  activity  might  be  longer  continued. 
There  are  certain  activities,  such  as  sanitation,  hospitalization,  fire 
and  police  protection,  and  other  similar  governmental  functions, 
which  obviously  are  not  activities  from  which  commercial  returns  can 
he  expected.  These  should  be  attached  to  canal  operations  proper 
and  the  cost  thereof  borne  by  canal  operations.  By  capitalizing 
the  canal  and  its  various  subdivisions  as  therein  recommended,  it 
is  believed  that  many  desirable  results  will  obtain,  for  thereafter  not 
only  the  canal  as  a  whole  but  each  of  its  auxiliary  activities  will  be 
given  a  measure  by  which  the  efficiency  of  its  operations  should  be 
determined. 

TROPICAL  LABOR. 

[Pages  9-10  of  Report.] 

Your  recommendation  as  to  tropical  labor  is  not  approved.  Trop- 
ical labor  will  not  be  employed  in  responsible  positions  which  in- 
volve any  element  of  the  national  defense,  or  where  such  employees 
might  imperil  the  proper  operation  of  the  canal. 

53 


54  REPORT   OF   SPECIAL   PANAMA   CANAL    COMMISSION. 

I  find  myself  in  accord,  however,  with  the  policy  of  extending  the 
employment  of  tropical  labor  in  other  capacities  than  those  gener- 
alized above,  and  also  with  the  policy  of  educating  and  developing 
such  native  labor  as  may  be  suitable  for  low-grade  work. 

No  changes  in  employment  should  be  entered  upon  precipitately, 
but  should  be  adopted  gradually  so  as  to  determine  by  experience  to 
what  extent  tropical  labor  can  be  properly  used,  to  what  extent  it  is 
a.  proper  and  real  economy,  and  what  limitations  should  be  placed 
thereon  so  as  to  avoid  any  injustice  to  American  labor  now  or  here- 
after employed  on  the  Canal  Zone. 

RENTS  AND  OTHER  PERQUISITES. 
[Pages  10-11  of  Report.] 

On  and  after  January  1,  1922,  rental  will  be  charged  for  quarters 
occupied  in  all  cases  where  such  quarters  do  not  form  a  part  of  the 
basic  wage,  and  the  rent  shall  be  determined  as  follows :  First,  write 
down  the  book  value  of  the  quarters  to  its  present  depreciated  value 
of  $3,435,076,  and  upon  this  value  charge  5  per  cent  for  amortization 
and  interest.  Add  to  that  amount  the  cost  of  repairs  due  to  the 
ordinary  wear  and  tear,  plus  the  cost  of  garbage  disposal  and  other 
services  necessary  from  a  sanitary  point  of  view,  and  prorate  the  re- 
sulting amounts  among  the  houses  according  to  the  amount  of  floor 
space,  including  porches,  in  each  set  of  quarters.  The  result  will  be 
the  rental  for  housekeeping  quarters.  For  bachelor  quarters  and 
nonhousekeeping  quarters  add  certain  fixed  sums  for  janitor  service, 
light  and  water,  as  set  forth  more  in  detail  in  Appendix  No.  1,  page 
40,  of  Special  Commission's  Report. 

It  is  further  recommended  that  the  repairs  to  furniture,  repairs 
to  stoves,  and  care  of  grounds,  at  the  cost  of  the  Government,  be  en- 
tirely stopped,  and  they  shall  be  maintained  by  the.  individual  oc- 
cupying the  premises  when  used  and  turned  over  at  the  expiration  of 
his  service  in  as  good  condition  as  when  received,  barring  wear  and 
tear. 

A  charge  shall  be  set  up  for  water  used  by  the  employees  at  a 
properly  derived  cost,  and  proportioned  to  cover  the  amount  of 
water  used.    Meters  will  not  be  used  on  account  of  their  cost. 

Electrical  service  for  light  and  heat  will  be  charged  for  in  married 
quarters  according  to  consumption.  All  such  quarters  will  be 
metered,  the  charge  to  be  at  a  properly  derived  cost. 

BASES   FOR   RATES   OF   PAY. 

[Page  11  of  Report.] 

The  rates  of  pay  fixed  by  law,  of  not  to  exceed  25  per  cent  the  rates 
paid  for  similar  service  in  the  Government  service  in  the  United 
States,  will  be  used  for  both  canal  and  railroad  employees.  There  are 
certain  rates  (notably  bases  fixed  for  railroad  employees,  for  building 
trade  rates,  and  for  rates  derived  from  the  latter)  which  are  now 
too  high,  and  for  which  a  new  rate  should  be  fixed.  In  fixing  these 
rates,  whether  from  Government  rates  or  from  commercial  rates 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  55 

when  no  Government  employment  of  similar  nature  can  be  con- 
veniently found,  consideration  should  be  given  to  the  fact  that  in 
some  sections  of  the  United  States  where  the  rate  is  higher  than  in 
other  places,  the  hourly  rate  is  fixed  on  such  a  basis  as  to  give  a 
suitable  wage  per  year,  taking  into  consideration  the  fact  that  in- 
clement weather  may  close  down  employment  during  portions  of 
the  year.  Similarly,  proper  consideration  should  be  given  to  a  suit- 
able differentiation  between  maintenance  employees  and  construction 
employees  at  the  canal,  these  terms  being  used  to  differentiate  those 
holding  reasonably  permanent  positions  from  those  whose  employ- 
ment may  terminate  with  cessation  of  a  construction  job. 

The  bases  upon  which  wages  are  determined  shall  be  gone  over 
carefully  and  be  readjusted  along  the  lines  above  indicated. 

OPEN    SHOP    POLICY. 
[Pages  12-18  of  Report.] 

Hereafter  no  agreement  will  be  entered  into  which  can)  not  be 
terminated  at  any  time  upon  thirty  days'  notice  by  the  Governor 
when  in  his  judgment  considered  advisable. 

The  so-called  union  rate  in  the  United  States  shall  not  necessarily 
be  followed  in  fixing  the  wage  scales,  but  the  wage  scale,  when  not 
fixed  on  a  Government. rate,  shall  be  derived  from  the  wage  actually 
paid  for  similar  services  in  various  representative  parts  of  the  United 
States,  whether  it  be  a  union  rate  or  a  non-union  rate. 

The  employees,  whether  union  or  non-union,  shall  be  dealt  with 
openly,  through  committees  or  representatives  composed  of  em- 
ployees, whether  representatives  of  labor  organizations  or  not. 

All  agreements  limiting  the  use  of  tropical  labor  be  abrogated,  and 
the  use  of  such  labor  shall  be  determined  by  the  Governor  as  else- 
where directed. 

It  is  the  intent  to  give  the  employees  the  right  to  lay  all  proper 
claims  or  complaints  before  the  Governor  or  the  agencies  he  may 
constitute  for  wage  or  complaints  adjustments,  through  their  repre- 
sentatives, and  to  accord  to  all  employees  fair  and  equitable  treat- 
ment, whether  they  be  members  or  non-members  of  a  labor  organi- 
zation. 

ENCOURAGEMENT    OP    AGRICULTURE. 

[Page  13  of  Report.] 

The  Canal  Zone,  and  especially  that  part  along  the  railroad  and 
lake,  will  be  thrown  open  to  agriculture  immediately,  and  agricul- 
ture and  truck  gardening  be  encouraged  in  every  way. 

The  Panama  Railroad  will  be  the  agency  through  which  the 
natives'  houses  are  constructed,  and  the  necessary  land  cleared  to 
start  this  agriculture. 

The  open  pasture  lands  near  the  railway  stations  will  be  the  first 
lands  opened  up. 

A  farm  demonstration  bureau  will  be  established  to  help  farmers, 
both  as  to  what  they  can  best  raise  and  as  to  how  they  can  obtain 
the  best  results. 


56  REPORT    OF    SPECIAL    PANAMA    CANAL    COMMISSION. 

NEW  AUDITING   SYSTEM. 

Wages  J  '/-!.'>  of  Report.} 

Among  the  recommendations  of  the  commission  the  following 
appears  : 

It  is  further  recommended  that  there  be  set  up  in  the  Canal  Administration. 
an  executive  officer  whose  time  shall  be  devoted  to  the  detailed  examination  and 
coordination  of  the  various  activities  of  which  the  canal  organization  is  made 
up.  This  executive  officer  should  he  a  man  who.  in  commercial  life,  would  cor- 
respond with  a  genera!  manager  of  a  private  corporation.  He  should  relieve 
the  Governor  of  all  executive  details,  and  for  this  purpose  we  recommend  that 
the  services  of  a  man  with  wide  experience  in  large  business  undertakings  be 
obtained. 

It  is  believed  impracticable  to  obtain  an  executive  officer  from 
civil  life  at  a  salary  properly  coordinated  with  that  of  the  Governor. 
The  engineer  of  maintenance,  however,  forms  an  excellent  substitute, 
and  can  perform  the  functions  of  an  executive  officer  if  relieved  of 
direct  charge  of  various  divisions  under  his  control ;  and  this  is 
directed. 

EXECUTIVE  VERSUS   OPERATIVE   PAY. 

[Page  15  of  Report.'] 

The  Governor  shall  be  allowed  from  Panama  Eailroad  funds  for 
entertainment  expenses  so  much  as  may  be  necessary  up  to  $4,000 
per  annum,  provided  that  this  use  of  Panama  Eailroad  funds  be 
authorized  by  Congress. 

DIVISION    OP    SCHOOLS. 

[App.  No.  1  of  Report.] 

The  number  of  colored  teachers  shall  be  increased  by  eight. 

The  colored  schools  shall  be  enlarged  at  Paraiso,  Red  Tank  and 
Cristobal  (or  Mount  Hope)  by  two  rooms,  at  Gatun  by  three,  and 
at  Empire  by  one. 

The  principals  of  the  various  colored  schools  shall  be  paid  $960  a 
year  and  the  other  teachers  from  $750  for  the  first  year  to  $900 
after  three  years'  service. 

The  silver  schools  should  be  extended  to  ten  months,  inasmuch  as 
the  children  are  accustomed  to  going  to  school  practically  the  entire 
year. 

Additional  buildings  needed  should  be  set  aside  from  existing 
structures,  or  if  necessary  they  should  be  immediately  constructed. 

The  preceding  five  directions  should  be  made  effective  from  funds 
which  may  be  made  available  from  economies  effected  in  other  ac- 
tivities under  the  civil  government. 

Xo  fee  shall  be  charged  for  children  of  employees  residing  out- 
side of  the  Canal  Zone. 

A  manual-training  school  shall  be  established  in  connection  with 
a  system  of  apprenticeship  in  the  useful  trades. 


REPORT    OF    SPECIAL    PANAMA    CANAL    COMMISSION.  57 

COURTS. 

|  A  pp.  No.  J  of  Report.] 

Steps  should  be  taken  to  turn  over  the  duties  of  the  Canal  Zone 
Marshal  to  the  Chief  of  Police,  securing-,  if  possible,  a  change  in  the 
law. 

MUNICIPAL   DIVISION. 
[App.  No.  1  of  Report.] 

The  subdivisions  of  the  northern  and  southern  districts  shall  be 
reduced   in  number  to   three  each. 

The  wages  of  the  foreman  and  superintendents  shall  be  thor- 
oughly gone  into  and  fixed  in  relation  to  the  class  of  work  on  which 
these  men  are  now  employed  and  not  upon  what  their  former  work 
was  or  what  their  capacity  may  be. 

After  present  commitments  in  the  cities  of  Panama  and  Colon 
are  fulfilled,  municipal  work  for  these  cities  shall  be  undertaken 
only  when  funds  are  actually  set  aside  and  available  therefor. 

The  number  of  subforemen  should  be  reduced. 

After  the  completion  of  the  work  on  the  Santo  Tomas  Hospital 
no  additional  work  of  this  kind  shall  be  undertaken  except  when 
funds  are  actually  set  aside  and  made  available  therefor. 

RELATIONS    WITH    PANAMA. 
[App.  No.  1  of  Report.] 

The  canal  administration  is  directed  not  to  handle  matters  (ex- 
cepting those  arising  from  the  exercise  of  the  Governor's  executive 
functions)  directly  with  the  Panaman  Government,  but  that  other 
matters  shall  be  dealt  with  through  the  regular  channels  of  the  State 
Department. 

The  Panaman  Government  should  be  informed  that  the  canal 
authorities  are  within  their  rights  under  the  treaty  in  purchasing 
and  selling  supplies  of  whatever  nature  to  the  employees  of  the 
Canal  Zone. 

The  present  practice  of  allowing  representatives  of  local  firms 
to  go  on  board  ships  and  solicit  business  should  be  kept  entirely 
free  and  unhampered  and  it  should  be  encouraged  rather  than  im- 
peded by  unnecessary  rules  and  regulations. 

The  Panaman  Government  should  be  advised  that  in  the  opinion 
of  the  Department  the  property  in  the  cities  of  Panama  and  Colon  is 
properly  held"  by  the  railroad  and  that  there  has  been  no  violation 
of  the  Treaty  in  connection  with  the  improvements  made  thereon. 

The  Panaman  Government  should  be  advised  that  the  Department 
can  not  concur  in  their  contention  in  reference  to  the  designation  of 
land  that  may  be  later  required  for  fortification  or  other  purposes, 
or  in  their  claim  that  the  United  States  should  pay  the  Republic  of 
Panama  for  surrendering  its  sovereign  rights  in  any  lands  hereafter 
required. 

The  question  presented  as  to  the  exemption  from  Panaman  taxes 
of  certain  property  of  the  Panama  Railroad  shall  be  referred  to  the 
proper  legal  advisers  of  the  Secretary  of  War  for  determination  and 
draft  of  a  suitable  answer. 


58  RKPORT    OF    SPECIAL   PANAMA    CANAL    COMMISSION. 

The  sum  of  money  now  due  the  United  States  for  the  construction 
of  public  works  in  the  cities  of  Panama  and  Colon  shall  be  divided  in 
two  equal  parts  and  deducted  from  the  next  two  annual  payments 
due  to  the  Panaman  Republic  and  thereafter  any  debts  incurred  shall 
be  deducted  from  the  next  succeeding  annual  payments,  provided  this 
can  be  done  satisfactorily  under  the  Treaty  obligations. 

Mr.  C.  P.  Fairman  should  be  informed  that  the  Secretary  of*War 
will  take  no  action  in  the  matter  of  title  to  lands  such  as  he  recom- 
mends and  that  he  or  his  clients  have  recourse  to  the  District  Court 
if  they  feel  that  justice  has  not  been  done  them. 

VENEREAL  SITUATION. 
[App.  No.  1  of  Report.] 

The  Governor  of  the  canal  shall  be  directed  to  have  his  legal  ad- 
viser examine  into  the  leases  under  which  the  Panama  Railroad  Co. 
has  rented  land  in  the  city  of  Colon  and  wherever  possible  by  an}' 
just  interpretation  of  the  law  the  lessee  shall  be  informed  that  the 
property  can  not  be  used  for  houses  of  prostitution  under  penalty 
of  losing  his  lease,  and  he  shall  further  be  instructed  that  all  future 
leases  shall  contain  a  definite  proviso  under  which  the  leases  can  be 
immediately  canceled  in  case  the  property  is  used  for  such  purpose. 

TRANSCONTINENTAL    ROAD. 
[App.  No.  1  of  Report.] 

The  use  of  the  railroad  embankment  for  this  purpose  shall  be 
authorized,  provided  it  can  be  done  without  widening  the  embank- 
ment. The  cost  of  moving  the  transmission  poles  and  the  construc- 
tion of  the  road  to  be  borne  by  the  military  authorities,  said  authority 
to  give  the  right  to  adapt  the  bascule  bridge  near  Monte  Lirio  so 
as  to  carry  the  highway  traffic  and  the  canal  administration  shall 
cooperate  in  this  work  and  assist  it  by  the  free  use  of  prisoners  for 
the  construction  of  the  road  wherever  practicable. 

HEALTH    DEPARTMENT. 
[App.  No.  1  of  Report.] 

Hospital  Division. — Employees  shall  be  charged  for  subsistence 
at  a  rate  to  cover  the  actual  cost  of  food  served.  These  cost  figures 
should  be  adjusted  every  three  months. 

The  Panama  Railroad  should  pay  for  the  hospital  and  sanitary 
services  furnished  to  its  employees  on  the  same  basis  that  any  other 
corporation  would  be  obliged  to  pay :  said  charges  to  be  the  same, 
hoAvever,  as  those  to  other  employees  of  the  canal,  paid  by  the  rail- 
road and  collected  by  it  from  its  employees. 

Approximately  10  per  cent  of  all  the  silver  employees  in  the  hos- 
pitals should  be  dispensed  with,  to  be  released  where  they  can  best 
be  spared. 

Sanitation  Division. — The  amounts  expended  for  sanitation  in  the 
Zone  shall  be  reduced  as  much  as  possible  consistent  with  maintain- 
ing the  necessary  sanitary  precautions  requisite  for  the  preservation 
of  the  health  of  American  employees  in  tropical  service. 


REPORT   OF   SPECIAL   PANAMA    CANAL   COMMISSION.  59 

The  cost  to  the  United  States  for  sanitation  in  the  cities  of  Colon 
and  Panama  should  .not  exceed  the  amounts  provided  by  the  cities 
themselves:  provided  that  not  to  exceed  half  the  expense  for  sanita- 
tion in  areas  in  Panama  or  Colon  occupied  exclusively  by  United 
States  employees  may  be  borne,  by  the  United  States. 

Householders  in  Panaman  and  Canal  territory  shall  be  obliged 
to  clean  and  keep  clean  their  own  property  under  penalty  of  having 
it  done  for  them  at  their  expense  by  our  sanitary  squads,  and  of 
paying  a  fine  for  repeated  offenses. 

ACCOUNTING    DEPARTMENT. 
[App.  No.  2  of  Report.] 

In  the  system  of  accounting  there  shall  be  provision  made  for  a 
■complete  and  independent  showing  by  each  separate  business  activity 
throughout  the  Zone,  and  invested  capital  (subject  to  the  revised 
set-up  value  as  elsewhere  directed)  shall  be  set  up  as  a  direct  charge 
thereto,  the  accounts  showing  the  actual  results  of  each  unit. 

The  Coupon  Accounting  Section  shall  be  abolished  in  connection 
with  establishing  a  system  of  cash  purchases. 

SUPPLY    DEPARTMENT. 
[App.  No.  2  of  Report.] 

A  careful  inventory  and  appraisement  should  be  made  of  all  stocks 
in  warehouses. 

All  materials  shall  be  in  accordance  with  standard  specifications 
wherever  possible,  and  in  case  the  purchase  of  non-standard  material 
or  supplies  is  authorized,  such  specifications  will  be  prepared  in  the 
department  where  material  or  supplies  are  required,  but  such  special 
non-standard  materials  will  only  be  purchased  upon  the  approval  of 
the  Governor. 

Encouragement  shall  be  given  to  civilians  to  come  into  the  Zone 
and  establish  stores  to  supply  the  ordinary  necessities  of  life  and 
the  commissaries  shall  confine  themselves  thereafter  to  the  sale  of 
staples  or  other  articles  not  locally  obtainable ;  this  should  be  started 
first  in  the  silver  communities  and  extended  as  rapidly  as  conditions 
justify. 

The  price  of  ice  to  employees  on  the  Canal  Zone  shall  be  fixed  at 
cost. 

COMMISSARY    DIVISION. 

The  commissary  division  henceforth  shall  be  operated  as  a  separate 
and  independent  unit  of  the  general  establishment  under  the  direction 
and  management  of  the  proposed  Vice  President  of  Panama  Rail- 
road in  Charge  of  Purchases  and  Supplies. 

An  immediate  inventory  should  be  taken  of  all  merchandise  in  stock 
to  the  end  that  current  and  salable  goods  only  be  retained,  charging 
same  at  a  figure  representing  present  fair  market  value,  the  balance 
to  be  written  off  as  a  loss  against  prior  operations  less  immediate 
salvage  value. 

All  stores  shall  be  operated  on  a  strictly  cash  basis. 


60  REPORT    OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

A  system  of  cards  shall  be  established  in  lieu  of  the  present  coupon 
system,  and  monthly  purchases  shall  be  limited  to  approximately 
75  per  cent  of  the  monthly  compensation  received,  one  card  to  serve 
both  identification  and  limit  purposes. 

MISCELLANEOUS  DIVISIONS. 
[Api).  Xo.  2  of  Report.] 

The  Ancon  planing  mill  gold  employees  shall  be  replaced  by  silver 
employees. 

The  operation  and  maintenance  of  all  motor  transportation  of  the 
Zone  shall  be  turned  over  to  the  supply  department  and  consolidated 
with  the  work  now  being  performed  by  that  department;  the  man- 
ager of  that  department  shall  be  authorized  to  employ  silver  labor 
wherever  it  can  be  used  to  advantage. 

Free  transportation  of  employees  to  and  from  their  vrork  shall  be 
discontinued,  except  in  special  cases  where  quarters  are  not  available 
reasonably  contiguous  to  the  work,  and  the  issuance  of  free  passes 
for  the  use  of  motor  vehicles  shall  be  reduced  to  the  lowest  possible 
point  consistent  with  the  actual  needs  of  the  service. 

The  green  house  at  Ancon  shall  be  either  leased  to  private  parties 
or  discontinued  and  liquidated. 

RESTAURANTS    AND    HOTELS. 

[App.  Xo.  2  of  Report.] 

The  restaurants  shall  be  treated  in  the  same  manner  as  the  com- 
missary stores,  and  each  plant  shall  be  immediately  inventoried,  a 
capital  charge  representing  the  fair  market  value  of  the  equipment 
shall  be  set  up :  the  management  shall  be  instructed  to  add  5  per  cent 
on  account  of  such  capital  investment  to  the  cost  of  its  operation,  the 
manager  to  report  directly  to  the  Vice  President  of  the  Railroad  in 
Charge  of  Purchases  and  Supplies,  each  unit  to  be  operated  sepa- 
rately and  distinctly  from  the  other  units;  the  purchase  of  materials 
from  the  commissary  and  elsewhere  shall  be  at  a  price  including 
percentage  of  profit  allocated  by  the  Governor  to  the  various  com- 
missaries, and  the  charges  for  meals  served  shall  cover  all  costs  of 
operation  of  the  restaurants,  including  interest  and  amortization  at 
the  rate  of  5  per  cent  on  the  capital  charge,  full  maintenance  of  the 
quarters  occupied,  depreciation  and  obsolescence,  plus  such  rate  of 
profit  as  may  be  authorized  by  the  Governor  to  be  set  aside  as  a  fund 
for  replacement  and  renewals  and  for  such  other  purposes  as  the 
Vice  President  in  Charge  of  Purchases  and  Supplies  may  direct ;  if 
it  is  found  under  the  new  plan  of  operation  that  any  particular 
restaurant  does  not  at  least  fully  sustain  itself,  it  should  after  six 
months'  trial  be  discontinued,  and  its  stocks  and  equipment  be  liqui- 
dated: provided,  unless  as  previously  directed,  there  exist  sufficient 
reasons  for  its  continuing. 

HOTEL    ASPINWALL. 

[App.  No.  2  of  Report.] 

Instructions  shall  be  issued  to  begin  at  once  the  liquidation  of  this 
hotel,  either  by  lease  or  by  sale,  to  private  capital,  or  failing  in  that, 
by  salva<riii<r  the  same. 


REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION.  61 

DIVISION  OF   LOCK   OPERATION. 

[A pp.  Xo.  3  of  Report.] 

The  operation  of  shipping  on  the  time  schedule  described  shall  be 
tried  out  impartially  and  ultimately  be  put  in  force  with  such  changes 
or  improvements  as  may  be  found  desirable. 

DREDGING  DIVISION. 

[A pp.  No.  3  of  Report.] 

The  ver}T  fine  seagoing  suction  dredge  Culebra  shall  be  sold  or 
transferred  to  the  Engineer  Department,  U.  S.  Army,  with  arrange- 
ments to  rent  back  at  intervals. 

Provided  suitable  guarantees  can  be  obtained  from  any  of  the 
Central  or  South  American  countries  that  may  need  its  services,  a 
pipe-line  suction  dredge  should  be  rented  with  its  crew  on  such  terms 
as  the  Governor  of  the  canal  may  deem  just  and  proper. 

MARINE    DIVISION. 

One  of  the  tug  boats  in  service  at  Balboa  shall,  for  the  present,  be 
laid  up  and  its  crew  with  the  exception  of  the  ship  keepers  fur- 
loughed. 

The  services  of  supply  boat  Xo.  1,  located  at  Cristobal,  shall  be 
dispensed  with  for  the  time  being,  and  her  crew,  with  the  exception 
of  a  ship  keeper,  be  furloughed. 

The  services  of  supply  boat  No.  £,  located  at  Balboa,  shall  be 
dispensed  with  for  the  time  being  and  her  crew,  with  the  exception  of 
a  ship  keeper,  be  furloughed. 

"  The  complement  of  the  tug  Gorgona  shall  be  reduced  by  one  master 
and  one  engineer. 

Unless  it  proves  to  be  impossible  to  recruit  competent  men  as  mates 
and  assistant  engineers,  the  personnel  of  the  Favorite  shall  be  reor- 
ganized on  the  following  basis: 

1  master. 

1  1st  mate. 

1  2d  mate. 

1  chief  engineer. 

1  1st  assistant  engineer. 

1  2d  assistant  engineer. 

All  of  these  men  to  have  the  necessary  U.  S.  Steamboat-Inspection 
Service  licenses  that  would  justify  their  charge  of  a  vessel  of  the 
Favorite'' 8  type  and  dimensions;  in  addition  to  these  officers,  there 
shall  be  retained  a  boatswain  and  radio  operator,  and  the  following 
silver  roll  crew : 

1  carpenter. 
5  oilers. 
5  firemen. 

4  coal  passers. 

1  messman  or  waiter  for  crew. 

5  seamen. 
1  steward. 
1  cook. 

1  messman  or  waiter  for  officers. 
3  quartermasters. 


62  REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

The  superintendent  of  the  marine  division  shall  be  directed  to  deter- 
mine after  conference  with  the  captains  of  the  ports  of  Cristobal  and 
Balboa  what  reductions  can  be  made  for  the  present  in  the  launch 
and  sailor  gangs  at  their  respective  ports. 

MECHANICAL     DIVISION. 
[App.  No.  3  of  Report.] 

The  attention  of  the  Governor  and  through  him  the  attention  of 
the  superintendent  of  the  mechanical  division  shall  be  called  to  the 
need  of  immediate  reductions  of  the  mechanical  force,  particularly 
with  reference  to  the  foremen  and  leading  men,  in  order  that  such 
ratings  shall  closely  conform  to  the  ATolume  of  work  actually  in  hand. 

There  shall  be  turned  over  to  the  mechanical  division  the  repair 
and  maintenance  of  all  electric  apparatus  connected  with  its  own 
shops  and  dry  docks. 

All  emploj^ees,  regardless  of  grade,  except  those  in  main  office  of 
division,  shall  be  required  to  wear  identification  tags  or  badges  while 
at  work. 

STEAMBOAT-INSPECTION  SERVICE. 
[App.  No.  3  of  Report.] 

All  orders,  circulars,  rules  of  the  road,  plans  of  situations,  and  the 
like,  governing  the  operation  of  craft,  shall  be  printed  in  Spanish 
as  well  as  in  English. 

PANAMA    RAILROAD. 
[App.  No.  4  of  Report.] 

Maintenance  of  Way  and  Structures. — All  steam  railroad  tracks 
on  the  Isthmus  shall  be  transferred  to  the  railroad  company  and 
be  included  in  its  assets,  operation  and  maintenance. 

The  tracks  put  in  and  owned  by  the  Army,  for  its  own  convenience, 
shall  be  regarded  as  industrial  tracks,  built  by  the  Army  for  its  own 
convenience,  but  operated  by  the  railroad,  the  actual  cost  of  main- 
tenance if  done  by  the  railroad  to  be  billed  against  the  Army. 

About  35  miles  of  sidetracks  shall  be  taken  up  and  salvaged. 

One  of  the  bridge  and  building  gangs  shall  be  abolished,  the  re- 
maining one  to  be  placed  in  boarding  cars  if  advisable  to  avoid  un- 
necessary expense. 

Section  forces  shall  be  immediately  furnished  with  track  motor 
cars. 

Maintenance  of  Equipment. — Many  cars  of  all  types  in  storage  at 
the  present  time,  as  well  as  all  other  stored  equipment  which  requires 
other  than  the  lightest  repairs,  shall  immediately  be  scrapped  and 
salvaged,  and  equipment  in  use,  reaching  the  stage  of  major  repairs, 
shall  be  retired  and  scrapped,  until  the  number  of  cars  required  for 
service  has  been  reached. 

The  motor  car  shop  shall  be  turned  over  to  the  supply  department. 

Transportation. — All  the  railroad  employees  on  the  Isthmus  shall 
be  rated  in  accordance  with  the  decisions  of  the  United  States  Rail- 
way Labor  Board.     In  case  that  average  earnings  of  a  class  in  the 


REPORT   OF   SPECIAL  PANAMA   CANAL   COMMISSION.  63 

United  Stales  be  used  in  determination  of  a  base  rate,  additional 
earnings  made  for  overtime  shall  not  be  used  in  the  base  to  any 
greater  extent  than  overtime  is  made  on  the  Isthmus. 

There  shall  be  a  revision  of  the  passenger  service,  three  trains  to  be 
run  in  each  direction  each  day,  and  the  Saturday  and  Sunday  night 
passenger  service  shall  be  discontinued. 

The  amount  of  passenger  equipment  being  used  shall  be  reduced, 
and  the  parlor  cars  carried  only  on  steamer  trains. 

A  revised  freight  train  schedule,  substantially  as  outlined,  shall 
be  installed. 

Station  Service. — Four  of  the  silver  men  at  the  station  at  Colon, 
six  of  the  silver  men  at  the  station  at  Panama,  and  six  of  the  silver 
men  employed  by  the  local  freight  agent  at  Panama  should  be  dis- 
pensed with. 

A  rearrangement  of  the  relief  service  shall  be  effected  enabling  the 
railroad  to  discontinue  one  of  the  relief  agents. 

The  helper  employed  at  Balboa  Heights  shall  also  act  as  porter, 
thereby  eliminating  one  job. 

The  crossing  watchman  at  Pedro  Miguel  shall  be  taken  off,  and  the 
crossing  protected  for  trains  by  one  of  the  two  station  helpers. 

In  rearranging  the  rates  for  station  employees,  difference  shall 
be  made  in  the  wages  paid  agents  at  the  larger  and  more  important 
stations. 

Traffic. — Whatever  action  necessary  to  authorize  the  establish- 
ment of  a  warehouse  for  goods  in  transit  in  Cristobal  shall  be  taken. 

The  indiscriminate  use  of  the  pass  privilege  should  be  called  to 
the  attention  of  the  administration  with  a  view  of  placing  a  reason- 
able restriction  upon  the  issuance  of  passes,  and  the  practice  of  giving 
canal  employees  and  their  families  monthly  passes  should  be  modified. 

Real  Estate. — The  realty  in  the  cities  of  Colon  and  Panama  shall 
be  carefully  appraised  and  the  values  thus  obtained  set  up  in  the 
assets  of  the  railroad  company,  at  the  same  time  writing  off  the 
items  carried  in  capital  account,  such  as  farm  industries,  cattle  lands, 
Pacific  Mail  and  Royal  Mail  properties,  and  other  items  which  call 
for  readjustment. 

An  effort  should  be  made  to  dispose  of  any  property  in  Panama 
City  (not  of  use  or  probable  use  to  the  railroad)  to  which  clear  title 
can  be  given. 

Coaling  Operations. — The  wet  storage  of  coal  for  the  Navy  shall  be 
permanently  discontinued. 

Serious  consideration  should  be  given  to  the  practicability  of  the 
operation  of  the  Cristobal  and  Balboa  Plants  on  an  eight-hour  per 
day  basis,  and  making  the  price  of  coal  the  same  at  Balboa  as  at 
Cristobal,  northbound  ships  being  permitted  to  transit  the  canal  and 
coal  at  the  northern  terminus  (Cristobal),  and,  likewise,  southbound 
ships  proceeding  through  the  canal  and  coaling  at  the  Pacific  ter- 
minus (Balboa). 

Other  Operations. — The  stables  should  be  contracted  or  leased  out 
to  individuals  from  whom  sufficient  rental  can  be  realized  to  relieve 
the  management  of  the  Railroad  completely  from  stable  operations. 

The  baggage  transfer  operated  in  Colon  and  Panama  should  be 
dispensed  with  as  soon  as  a  responsible  transfer  company  undertakes 
business  in  either  or  both  of  these  cities. 


64  REPORT   OF   SPECIAL   PANAMA   CANAL   COMMISSION. 

PANAMA    RAILROAD    STEAMSHIP    LINE. 
[App.  No.  .'t  of  Report.] 

The  steamers  Allianca  and  Advance  should  be  immediately  retired 
from  service  and  sold  for  whatever  amount  they  will  bring. 

Immediate  steps  should  be  taken  through  the  proper  authorities  of 
the  War  Department  to  obtain  relief  from  the  excessive  rentals  now 
being  paid  for  pier  space  at  Hoboken  and  for  the  acquisition  of 
adequate  pier  space  in  the  harbor. 


In  the  above  directions  it  is  understood  that  the  reductions  directed 
refer  to  reductions  from  conditions  existing  at  the  dates  referred  to 
in  the  report  of  the  Special  Panama  Canal  Commission. 

To  carry  these  directions  into  effect  will  require  in  some  cases  an 
Executive  order  issued  by  the  President.  You  will  have  the  neces- 
sary orders  prepared  as  promptly  as  possible  and  forwarded  to  me 
for  submission  to  the  President. 

As  to  the  other  matters  in  the  commission's  report,  you  are  granted 
the  additional  time  that  you  request  in  order  to  make  a  further  study 
of  the  subjects.     Submit  your  report  in  these  other  matters  at  the 
earliest  practicable  date. 
Respectfully, 

John  W.  Weeks, 
Secretary  of  War. 

o  • 


••-.  '     '    •  '    ,  •  . 


UNIVERSITY  OF  FLORIDA 


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